Consider the following modification of the perfect information preemption game developed in the…

Consider the following modification of the perfect information preemption game developed in the text. Players now choose two times: a time s to do a feasibility study and a time t to build a plant. In order to build a plant, the player must have done a feasibility study insome s < t,="" with="" s="" and="" t="" required="" to="" be="" odd="" for="" player="" 2="" and="" even="" for="" player="" 1.="" doing="" a="" feasibility="" study="" costs="">ε in present value, where ε is small, but this cost is recouped except for lost interest payments if only that player builds a plant. Thus, the payoff is –ε if a player does a feasibility study and never builds, -1 –ε if a player does a feasibility study and both builds, and  if a player does a study, builds, and his opponent does not build. Show that the equilibrium outcome that survives iterated conditional dominance is for player 1 to pay for a study in period 2 and wait until period 6 to build. Explain why player 1 is now able to postpone buliding, and why player 2 cannot preempt by doing a study at s – 1. Related this to “ε-preemption.” (This exercise was provided by R. Wilson)