We use payoff matrices to examine situations in which players can be thought of as choosing their strategies simultaneously. In some strategic situations however it is natural to suppose that one firm makes some decision and then a competitor reacts after observing the decision. We use a structure known as a game tree in order to display data for situations in which the second player choose her strategy after observing the choice made by the first.

   To the right is part of a simple game tree. A blue node indicates a choice for Firm 1 and an orange node a choice for Firm 2. In this instance Firm 1 (F1) must decide whether or not to advertise. Once this decision is made, Firm 2 (F2) will then have to choose its strategy. Firm 2 appears to have more choices simply because it decides after Firm 1. Whichever path Firm 1 chooses Firm 2 is left with two choices.

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