Australia and Japan are negotiating a free trade agreement. At the final stages of these negotiations there are only two ‘stages’ remaining. First, Japan can agree to include beef IN the free trade agreement, or to leave beef OUT. Following Japan’s choice of IN or OUT regarding beef, this choice is observed by Australia and they can choose to either AGREE or to NOT agree with the proposal. In the case that Australia chooses NOT, it will be free to sign up to a free trade agreement with Korea (with the payoffs for Australia detailed below). The payoffs are as follows. In Japan chooses IN and Australia chooses Agree the payoffs are (90, 100), where the first payoff is for Japan and the second is Australia’s payoff. If Japan chooses IN and Australia NOT the payoffs are (20, 60). IfJapan opts for OUT and Australia still AGREEs with the proposal, the payoffs are (100, 50). Finally, if Japan chooses OUT and Australia chooses NOT to agree the payoffs are (20, 60). What are actions observed in the subgame perfect (or credible) equilibrium outcome in this game?
A) Japan chooses OUT, and Australia AGREE
B) Japan chooses OUT and Australia NOT
C) None of the above.
A) Japan chooses OUT, and Australia AGREE
B) Japan chooses OUT and Australia NOT
C) None of the above.
