Chapter 13, Problem 2TY

Little Kona is a small coffee company that is considering entering a market dominated by Big Brew. Each company's profit depends on whether Little Kona enters and whether Big Brew sets a high price or a low price:   True or False: Only Little Kona has a dominant strategy in this game. True or False   Which of the following outcomes represent a Nash equilibrium in this case? Check all that apply. Big Brew maintains a high price and Little Kona enters.   a.Big Brew maintains a low price and Little Kona enters.   b.Big Brew maintains a high price and Little Kona does not enter.   c.Big Brew maintains a low price and Little Kona does not enter.     Big Brew threatens Little Kona by saying, “If you enter, we're going to set a low price, so you had better stay out.” True or False: Little Kona should not believe the threat. True or False     If the two firms could collude and agree on how to split the total profits, what outcome would they…

a Firm A and Firm B decide to launch their new products in the market. Each firm can choose to either sell the product at a high price (H) or a low price (L). The estimated payoff table is as follows:   Firm B   L   H   Firm A   L   (250, 150)   (280, 130)   H   (140, 180)   (270, 190)   (Firm A's payoff is given before the comma, and Firm B's payoff is given after the comma.)   i What are the dominant strategies (if any) for Firm A and Firm B respectively?   ii What is the Nash equilibrium outcome, if any? Explain. (   iii If Firm A can decide on what strategy to use first, what will be the Nash equilibrium (if any) of this sequential game? Explain with the aid of a tree diagram.   b Explain why the market of health insurance is less efficient with the presence of asymmetric information. (Assume the insured knows more about his/her health condition than the insurance provider.)

Using the Figure below, consider now that the entrant, if fought, has the possibility of withdrawing from the industry (at a loss of 1 for the entrant and again of 8 for the incumbent), or staying (at a loss of 5 for each player). What is the equilibrium of this game? Discuss if the entrant is better off with or without the ability to withdraw.