Burger Doodle, the incumbent firm, wishes to set a limit price of $8 (rather than the profit-maximizing price of $12) to prevent Designer Burger from entering its profitable market. The game tree above shows the payoffs for various decisions. Burger Doodle makes its pricing decision, then Designer Burger decides whether to enter or stay out of the market. If Designer Burger chooses to enter the market, then Burger Doodle may or may not decide to accommodate Designer’s entry by changing its initial price to the Nash equilibrium price of $10. If Burger Doodle canNOT make a credible commitment to maintain its initial price should Designer Burger decide to enter the market, then Burger Doodle will set price equal to $________ at decision node 1 and the outcome _____________(is, is not) a Nash equilibrium.
Burger Doodle, the incumbent firm, wishes to set a limit
If Burger Doodle canNOT make a credible commitment to maintain its initial price should Designer Burger decide to enter the market, then Burger Doodle will set price equal to $________ at decision node 1 and the outcome _____________(is, is not) a Nash equilibrium.
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$10 is not a possible
Multiple Choice
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8; is
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8; is not
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12; is
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12; is not