You are considering entering a market serviced by a monopolist. You currently earn £0 economic profits, while the monopolist earns £5. If you enter the market and the monopolist engages in a price war, you will lose £5 and the monopolist will earn £1. If the monopolist doesn't engage in a price war, you will each earn profits of £2. (a) Write out the extensive form of the above game? (b) Are there any Nash equilibria for the game? Explain. (c) Is there a subgame perfect equilibrium? Explain. (d) If you were the potential entrant, would you enter? Explain why or why not.
You are considering entering a market serviced by a monopolist. You currently earn £0 economic profits, while the monopolist earns £5. If you enter the market and the monopolist engages in a price war, you will lose £5 and the monopolist will earn £1. If the monopolist doesn't engage in a price war, you will each earn profits of £2. (a) Write out the extensive form of the above game? (b) Are there any Nash equilibria for the game? Explain. (c) Is there a subgame perfect equilibrium? Explain. (d) If you were the potential entrant, would you enter? Explain why or why not.
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter15: Strategic Games
Section: Chapter Questions
Problem 10MC
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You are considering entering a market serviced by a monopolist. You currently earn £0 economic profits, while the monopolist earns £5. If you enter the market and the monopolist engages in a price war, you will lose £5 and the monopolist will earn £1. If the monopolist doesn't engage in a price war, you will each earn profits of £2.
(a) Write out the extensive form of the above game?
(b) Are there any Nash equilibria for the game? Explain.
(c) Is there a subgame perfect equilibrium? Explain.
(d) If you were the potential entrant, would you enter? Explain why or why not.
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