Consider a market with an incumbent and two potential entrants. The incumbent can take on one incumbent (through predatory pricing), but can't take on both. If neither potential entrant enters the market both get 0. If one enters, they get -5 and other gets 0. If both enter, both get 2. A. First consider what happens when the firm simultaneously decide whether to enter the market. Draw the table. B. What is the mixed strategy equilibrium? C. Now consider what happens when one firm decides whether to enter before the other. Draw the game tree. Find the subgame perfect equilibrium
Consider a market with an incumbent and two potential entrants. The incumbent can take on one incumbent (through predatory pricing), but can't take on both. If neither potential entrant enters the market both get 0. If one enters, they get -5 and other gets 0. If both enter, both get 2. A. First consider what happens when the firm simultaneously decide whether to enter the market. Draw the table. B. What is the mixed strategy equilibrium? C. Now consider what happens when one firm decides whether to enter before the other. Draw the game tree. Find the subgame perfect equilibrium
Chapter15: Oligopoly And Strategic Behavior
Section: Chapter Questions
Problem 12P
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Question
![Consider a market with an incumbent and
two potential entrants. The incumbent can
take on one incumbent (through predatory
pricing), but can't take on both. If neither
potential entrant enters the market both get
0. If one enters, they get -5 and other gets 0.
If both enter, both get 2.
A. First consider what happens when the firm
simultaneously decide whether to enter the
market. Draw the table.
B. What is the mixed strategy equilibrium?
C. Now consider what happens when one
firm decides whether to enter before the
other. Draw the game tree. Find the subgame
perfect equilibrium](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F889cbce3-8705-4c40-afb5-40d8afe4ff3b%2F9576c039-df49-454b-9816-bf1a24b79787%2Fjp5ogk_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Consider a market with an incumbent and
two potential entrants. The incumbent can
take on one incumbent (through predatory
pricing), but can't take on both. If neither
potential entrant enters the market both get
0. If one enters, they get -5 and other gets 0.
If both enter, both get 2.
A. First consider what happens when the firm
simultaneously decide whether to enter the
market. Draw the table.
B. What is the mixed strategy equilibrium?
C. Now consider what happens when one
firm decides whether to enter before the
other. Draw the game tree. Find the subgame
perfect equilibrium
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