Question 2 Suppose there are two players, an entrant and an incumbent firm playing the following game: the entrant decides whether to stay out or enter. The incumbent decides whether to innovate or not. If the entrant stays out, the entrant firm gets a payoff of 0 whereas the incumbent firm gets a payoff od 1500, independent of the action of the incumbent firm. If the entrant enters and the incumbent doesn't innovate, the entrant gets 1200 whereas the incumbent gets 500. If the entrant enters and the incumbent innovates, the entrant and the incumbent get a payoff of 1000 each. a) b) Draw the normal form of the game and solve for the Nash equilibrium/equilibria. Suppose the game is dynamic: first the entrant decides whether to enter or stay out. If the entrant enters, the incumbent decides whether to innovate or not. If the entrant stays out, the incumbent doesn't get to play. Draw the extensive form of the fame, mark the subgames on paper and solve for the subgame-perfect Nash equilibrium/equilibria.

Question 2 Suppose there are two players, an entrant and an incumbent firm playing the following game: the entrant decides whether to stay out or enter. The incumbent decides whether to innovate or not. If the entrant stays out, the entrant firm gets a payoff of 0 whereas the incumbent firm gets a payoff od 1500, independent of the action of the incumbent firm. If the entrant enters and the incumbent doesn't innovate, the entrant gets 1200 whereas the incumbent gets 500. If the entrant enters and the incumbent innovates, the entrant and the incumbent get a payoff of 1000 each. a) b) Draw the normal form of the game and solve for the Nash equilibrium/equilibria. Suppose the game is dynamic: first the entrant decides whether to enter or stay out. If the entrant enters, the incumbent decides whether to innovate or not. If the entrant stays out, the incumbent doesn't get to play. Draw the extensive form of the fame, mark the subgames on paper and solve for the subgame-perfect Nash equilibrium/equilibria.

Principles of Microeconomics (MindTap Course List)

8th Edition

ISBN:9781305971493

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter17: Oligopoly

Section: Chapter Questions

Problem 9PA

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