the sub game-perfect equilibrium for F 1 > 2000 and F1<2000 and also predation affect the equilibrium.

Question

Want to see the full answer?

Answer 1

Question

Chapter 12, Problem 12.9P

To determine

To Compute: the sub game-perfect equilibrium for F1>2000 and F1<2000 and also predation affect the equilibrium.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Consider a game where a potential market Entrant is trying to decide whether or not to enter the market. An Incumbent monopolist is established and can choose to cut the price, maintain the price, or raise the price in hopes of deterring the Entrant from entering. Incumbent Entrant Enter Stay Out Cut Price -4,4 0,9 Maintain Price 4,6 0,12 Raise Price 5,5 0, 13 a) Suppose the Entrant and the Incumbent make their decisions simultaneously. Is there a pure strategy Nash equilibrium? If so, what is it? b) Suppose the players move sequentially, and that the Entrant moves first. Set up the game tree and solve for the equilibrium path. Can the Incumbent deter entry? Explain. c) Now suppose that the Incumbent moves first. Again, set up the game tree. What is the subgame perfect Nash equilibrium outcome now? Can the Incumbent deter entry now?

1. Consider an industry with inverse demand given by p = 8 – q, where p is the price, and q is the quantity. There is one incumbent firm and one potential entrant. In the first stage of the game, the incumbent chooses its quantity qi. In the second stage, the potential entrant observes qi and chooses its quantity Ce. The potential entrant can also decide not to enter the market. The production technology of both firms are represented by the cost function C = 2q. To enter industry implies a fixed entry cost of F. (a) Find the equilibrium of the game, assuming that the potential entrant enters the industry. What are the profits of firms? (b) Assume that entry is not blockaded. For which values of F does the incumbent firm prefer to deter entry? (c) For which values of F, entry blockaded?

A monopolist is being challenged by a new entrant. The payoff table below shows the two firms’ profits (in thousands of dollars). The incumbent monopolist (player 2) can choose between high and low levels of advertising—High and Low, respectively. The challenger can choose to enter the market or stay out of the market—Enter and Exit, respectively. High Low Enter 5, 170 50, 150 Exit 0, 175 0, 200 True/False/Uncertain and Explain: The monopolist makes a credible threat to increase its advertising (chooses “High”) if the challenger enters the market, and as a result the challenger does not enter the market (chooses “Exit”).