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

Principles of Microeconomics (MindTap Course List)

8th Edition

ISBN:9781305971493

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter17: Oligopoly

Section: Chapter Questions

Problem 5PA

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