1. Fresh from a successful marketing and financing campaign, you suggest that your client think about charging different prices to different customers. Why might your client wish to do that? Explain in detail.

2. You are on the road and stop at a restaurant where you have never eaten before and will never eat again. The waiter also knows that you are a complete stranger and will never see you again after this meal. Both of you only care about yourselves and not the other. You and the waiter both know that you will not tip him if the service is bad.

The waiter has the first move; should he provide you with good service or not.  You have the second move; if the waiter provides you with good service, will you tip him or not. The payoffs at the end of this "Timing Game" are: 20 each for you and the waiter if the service is good and you tip. 30 for you and -5 for the waiter if the service is good but you don't tip. And 10 for the waiter and only 5 for you if the service is bad.

(a) Explain why the waiter will provide bad service.

(b) Since you are interested in good service, can you convince the waiter, in a binding/credible manner that you will tip him?

(c) If you both live in a "moral" society where everyone is ethical, how does that make your decision easier?