Gen Combo Managerial Economics & Business Strategy; Connect Access Card
9th Edition
ISBN: 9781260044294
Author: Baye
Publisher: MCG
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Chapter 10, Problem 12PAA
To determine
If it will be better to make side-impact airbags standard equipment for the company H or not.
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Use a game tree to illustrate why an aircraft manufacturer may price below the current marginal cost in the short run if it has a steep learning curve.
(Hint:
Show that learning by doing lowers its cost in the second period.)
Part 2
Assume for simplicity the game tree is illustrated in the figure to the right. Pricing below marginal cost reduces profits but gives the incumbent a cost advantage over potential rivals. What is the subgame perfect Nash equilibrium?
Answer
M” method
Given the following model, solve by the method of “M”. (see image)
Chapter 10 Solutions
Gen Combo Managerial Economics & Business Strategy; Connect Access Card
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