E 11 Continue to maximize profit (0,80) Stay out Fight entry Enter 12 (0, 10) Continue to maximize profit (30, 50) ($millions entrant's profit, Smillions incumbent's profit) In the sequential game shown above, "E" represents the potential entrant firm, and "I" represents the incumbent firm. Firm need to decide whether to enter the market or "stay out". If E stays out, the incumbent is at decision node 11 and simply continues business as usual. If firm E enters, firm I is in decision node 12 and needs to decide whether to "fight entry" or "continue". Payoffs are given in parentheses, with the first term for form E and the second term for firm I. What is the backward induction equilibrium of this game? None of the above are correct. E: Enters; I: (Fights at 11, Fights at 12) E: Stays Out; I: (Continues at 11, Fights at 12) E: Enters; I: (Continues at 11, Continues at 12) E: Stays Out; I: (Continues at 11, Continues at 12)

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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E
11
Continue to maximize profit
(0, 80)
Stay out
Fight entry
Enter
12
(0, 10)
Continue to maximize profit
(30, 50)
($millions entrant's profit, $millions incumbent's profit)
In the sequential game shown above, "E" represents the potential entrant firm, and "I"
represents the incumbent firm. Firm need to decide whether to enter the market or "stay
out". If E stays out, the incumbent is at decision node 11 and simply continues business as
usual. If firm E enters, firm I is in decision node 12 and needs to decide whether to "fight
entry" or "continue". Payoffs are given in parentheses, with the first term for form E and the
second term for firm I. What is the backward induction equilibrium of this game?
None of the above are correct.
E: Enters; I: (Fights at 11, Fights at 12)
E: Stays Out; I: (Continues at 11, Fights at 12)
E: Enters; I: (Continues at 11, Continues at 12)
E: Stays Out; I: (Continues at 11, Continues at 12)
Transcribed Image Text:E 11 Continue to maximize profit (0, 80) Stay out Fight entry Enter 12 (0, 10) Continue to maximize profit (30, 50) ($millions entrant's profit, $millions incumbent's profit) In the sequential game shown above, "E" represents the potential entrant firm, and "I" represents the incumbent firm. Firm need to decide whether to enter the market or "stay out". If E stays out, the incumbent is at decision node 11 and simply continues business as usual. If firm E enters, firm I is in decision node 12 and needs to decide whether to "fight entry" or "continue". Payoffs are given in parentheses, with the first term for form E and the second term for firm I. What is the backward induction equilibrium of this game? None of the above are correct. E: Enters; I: (Fights at 11, Fights at 12) E: Stays Out; I: (Continues at 11, Fights at 12) E: Enters; I: (Continues at 11, Continues at 12) E: Stays Out; I: (Continues at 11, Continues at 12)
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