The following equalities define a BNE 1(1) g2(t) 1 n(+2)+g2(t 31 42 t2) 692 292 t2 q(t2)+7q( You should be able to see where the above equalities come from by inspecting the defi- nitions of pi and p2 With the help of a numerical linear equation package we get (1)=.62638 q1(2)=63472 37638 q1(2 .38472 Note that we have simply applied Or's definition of Bayesian Nash equilibrium. That is we are still on familiar ground. We have only deviated from "tradition"in that our model is more elaborated than the "textbook variant Consider state woll. Observe that won E B1(t2): that is, in this state Firm 1 is certain that Firm 2's marginal on c is 3-2, and indeed this belief is correct. Moreover, Firm 2 is certain that, if Firm 1 has low cost, she(Firm 1)holds correct beliefs about his(Firm 2s) marginal on c, this belief, too, is correct. However, Firm 2 thinks that, if Firm 1 has high cost, she(Firm 1)may be mistaken about his(Firm 2 s) marginal on c with probability Thus, there seem to be"minimal "deviations from the textbook treatment given above; in particular, Firm 2 s first-order beliefs about c are the same in both cases. Yet, the equilibrium outcome in state woll is different from the"textbook" prediction. Indeed, there is no state in which Bayesian Nash equilibrium predicts the same outcome as in the " textbook"treatmentThe following equalities define a BNE: q1(t 01 1 ) = 1 − 1 2 q2(t 1 2 ) q1(t 02 1 ) = 1 − 1 2  1 2 q2(t 1 2 ) + 1 2 q2(t 2 2 )  q1(t 1 2 1 1 ) = 3 4 − 1 2 q2(t 1 2 ) q1(t 1 2 2 1 ) = 3 4 − 1 2  1 2 q2(t 1 2 ) + 1 2 q2(t 2 2 )  q2(t 1 2 ) = 1 − 1 2  1 2 q1(t 01 1 ) + 1 2 q1(t 1 2 2 1 )  q2(t 2 2 ) = 1 − 1 2  3 4 q1(t 02 1 ) + 1 4 q1(t 1 2 2 1 )  You should be able to see where the above equalities come from by inspecting the defi- nitions of p1 and p2. With the help of a numerical linear equation package we get q1(t 01 1 ) = .62638 q1(t 02 1 ) = .63472 q1(t 1 2 1 1 ) = .37638 q1(t 1 2 2 1 ) = .38472 q2(t 1 2 ) = .7472 q2(t 2 2 ) = .7138 Note that we have simply applied OR’s definition of Bayesian Nash equilibrium. That is, we are still on familiar ground. We have only deviated from “tradition” in that our model is more elaborated than the “textbook” variant. Consider state ω011. Observe that ω011 ∈ B1(t 1 2 ): that is, in this state Firm 1 is certain that Firm 2’s marginal on c is 1 2 − 1 2 , and indeed this belief is correct. Moreover, Firm 2 is certain that, if Firm 1 has low cost, she (Firm 1) holds correct beliefs about his (Firm 2’s) marginal on c; this belief, too, is correct. However, Firm 2 thinks that, if Firm 1 has high cost, she (Firm 1) may be mistaken about his (Firm 2’s) marginal on c with probability 1 2 . Thus, there seem to be “minimal” deviations from the textbook treatment given above; in particular, Firm 2’s first-order beliefs about c are the same in both cases. Yet, the equilibrium outcome in state ω011 is different from the “textbook” prediction. Indeed, there is no state in which Bayesian Nash equilibrium predicts the same outcome as in the “textbook” treatment. 4