Question: Some time ago, conservation groups provided compensation ranchers in Wyoming to move their herds away from wild buffalo herds so that the buffalo would not have to compete with the cattle for food. Explain how the Coase Theorem may be relevant in this case.

The Coase Theorem states that when there are externalities present, the party who can internalize the externality will be better off. In this case, the conservation groups are trying to internalize the externality of the wild buffalo herds competing with cattle for food. By providing compensation to ranchers, they are hoping to get them to move their herds away from the buffalo herds. This would then allow the buffalo herds to have more food and not compete with the cattle. While this may work in theory, it is often difficult to implement in practice. There can be problems with information asymmetry, transaction costs, and free riding. Additionally, the Coase Theorem only works if there are no other externalities present. In this case, there may be other externalities that the conservation groups are not taking into account. For example, buffalo herds may compete with other wildlife for food, or they may damage property. Overall, the Coase Theorem is a useful tool to understand how to deal with externalities, but it is important to keep in mind its limitations.

1. Two firms (A and B) compete in the wireless services industry. Each firm has two possible strategies: “High Price” or “Low Price”. The payoffs associated with the different strategies are described below.

• Identify, if any, the dominant strategy or dominant strategies for Firm A and Firm B. (5 points)
• What is/are the Nash equilibrium or equilibria in this game, if any? How did you determine the Nash equilibrium or equilibria? (5 points)

2. Two firms (A and B) compete in the tablets industry. Each firm has two possible strategies: “low price” or “high price”. P_Aand P_B are the probabilities attached to the strategy “low price” for Firm A and Firm B. (1 - P_A) and (1 - P_B) are the probabilities attached to strategy “high price” for Firm A and Firm B.

• What is/are the pure strategy Nash equilibrium (or equilibria)? (5 points)
• Is there a mixed strategy Nash equilibrium? (5 points)

3. Some time ago, conservation groups provided compensation ranchers in Wyoming to move their herds away from wild buffalo herds so that the buffalo would not have to compete with the cattle for food. Explain how the Coase Theorem may be relevant in this case.

4. Situation 1

Robert wants to buy a certain type of used car. Paula owns this type of used car. Paula claims that her car is of excellent quality. She knows the real condition of her used car. In fact, her car is not in good condition. Robert does not have any knowledge in automobile mechanics and thus does not know whether Paula’s car is in excellent condition or not. Robert is risk neutral. Robert is willing to buy a used car in a good condition at $17,000 and used car in less than a good condition at $8,000. Paula makes an offer to Robert for $12,000. Since her car is in less than a good condition, she would be willing to sell it to Robert or anybody else for $6,000.

• Will Robert accept her offer? Why? Why not? (5 points)
• What is the maximum price at which Robert would buy Paula’s car?  (5 points)
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The Coase Theorem is often cited in cases involving environmental conservation, as it provides a way to account for the externalities that are often present in these situations. In the case of the Wyoming ranchers, the theorem suggests that if the ranchers are willing to accept compensation for moving their herds, then it may be possible to reach an agreement that is beneficial for both parties. This could potentially allow the buffalo herds to flourish without competition from cattle, and could also provide financial stability for the ranchers. While this may not be the only solution to the problem, it is one that should be considered given its potential benefits.

1. Two firms (A and B) compete in the wireless services industry. Each firm has two possible strategies: “High Price” or “Low Price”. The payoffs associated with the different strategies are described below.

• Identify, if any, the dominant strategy or dominant strategies for Firm A and Firm B. (5 points)
• What is/are the Nash equilibrium or equilibria in this game, if any? How did you determine the Nash equilibrium or equilibria? (5 points)

2. Two firms (A and B) compete in the tablets industry. Each firm has two possible strategies: “low price” or “high price”. P_Aand P_B are the probabilities attached to the strategy “low price” for Firm A and Firm B. (1 - P_A) and (1 - P_B) are the probabilities attached to strategy “high price” for Firm A and Firm B.

• What is/are the pure strategy Nash equilibrium (or equilibria)? (5 points)
• Is there a mixed strategy Nash equilibrium? (5 points)

3. Some time ago, conservation groups provided compensation ranchers in Wyoming to move their herds away from wild buffalo herds so that the buffalo would not have to compete with the cattle for food. Explain how the Coase Theorem may be relevant in this case.

4. Situation 1

Robert wants to buy a certain type of used car. Paula owns this type of used car. Paula claims that her car is of excellent quality. She knows the real condition of her used car. In fact, her car is not in good condition. Robert does not have any knowledge in automobile mechanics and thus does not know whether Paula’s car is in excellent condition or not. Robert is risk neutral. Robert is willing to buy a used car in a good condition at $17,000 and used car in less than a good condition at $8,000. Paula makes an offer to Robert for $12,000. Since her car is in less than a good condition, she would be willing to sell it to Robert or anybody else for $6,000.

• Will Robert accept her offer? Why? Why not? (5 points)
• What is the maximum price at which Robert would buy Paula’s car?  (5 points)