Question

A monopolist is facing a threat of entry by another firm. First the entrant decides whether or not to enter, and then the incumbent decides whether or not to cut its price (fight) in response. If the entrant decides to stay out, it gets a payoff of 0 and the incumbent gets a payoff of 10 as a monopolist. If the entrant decides to enter the market, two firms’ payoff depends on whether the incumbent fights or not. If the incumbent fights, then both firms end up with a negative payoff -5. If the incumbent decides not to fight, they divide the market profit and both get a payoff of 5. Draw the extensive form of the game and solve the backward induction outcome.

Answer #1

Consider the game here there are two players “Entrant” and “Incumbent”. Now, consider the following extensive form game.

Now, there are two action of “Entrant” now if he chooses “SO” will get “0” as payoff, if he chooses “En”, => “Incumbent” will choose “NF”, since 5 > -5. So, if “Entrant” chooses “En”, => will get payoff “5” > 0. So, the optimum choice of “Entrant” is to choose “En”. So, here the solution of this game is “En, NF” and the corresponding payoff is “5, 5”.

Consider the following market entry game. There are two firms :
firm 1 is an incumbent monopolist on a given market. Firm 2 wishes
to enter the market. In the first stage, firm 2 decides whether or
not to enter the market. If firm 2 stays out of the market, firm 1
enjoys a monopoly profit of 2 and firm 2 earns 0 profit. If firm 2
decides to enter the market, then firm 1 has two strtegies : either...

2. Entry Deterrence. Suppose there is one incumbent monopolist
and one potential entrant in a
given market. If the potential entrant stays out, then the
monopolist will receive monopoly
profits of 100, while the potential entrant will receive profits
of 10 from other endeavors. On the
other hand, if the potential entrant enters, then the incumbent
can ACCOMODATE, or
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Firm A currently monopolizes its market and earns profits of $10
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Assume that market demand is Q = 100 – P. Assume that this is a
two-period game. The incumbent enters the market in the first time
period and chooses its capacity, K1, at a cost of $35 per unit. By
choosing its capacity in the first period, capacity is a sunk cost
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Delta airlines case study
Global strategy. Describe the current global
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casestudy:
Atlanta, June 17, 2014. Sea of Delta employees and their
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