Two firms are planning to join the shoe industry. Firm 2 knows the size of firm 1 but firm 1 has incomplete information on the size of firm 2. The payoffs associated with these 2 scenarios are given below

Two firms are planning to join the shoe industry. Firm 2 knows the size of firm 1 but firm 1 has incomplete information on the size of firm 2. The payoffs associated with these 2 scenarios are given below

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Two firms are planning to join the shoe industry. Firm 2 knows the size of firm 1 but firm
1 has incomplete information on the size of firm 2. The payoffs associated with these 2
scenarios are given below

Firm 2 is small
Player 2
Player 1
E
S
2,3
1,4
E
3,1
8,2
S
Firm 2 is large
Player 2
E
Player 1
S
E
5,2
6,3
4,3
8,4
S

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When Firm 2 is small:

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