Assume that we have an entry situation like that in the Judo Economics example. There is an incumbent firm (I) and a new entrant (E). Now we will look at the outcome if the entrant is at a disadvantage. The incumbent has constant marginal costs of production of $100, while marginal costs for the entrant are $120 per unit. There are 100 identical buyers who are willing to pay $200 for the incumbent’s product, but only $160 to buy from the entrant. Any consumer can buy from the incumbent, but only those targeted by the entrant can buy from the entrant. Those consumers targeted by the entrant can choose to buy from the incumbent or the entrant and will choose the lowest
How many consumers should the entrant target, and what is the optimal price? What are the incumbent’s profits in this scenario?
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