Question

Consider the following market game: An incumbent firm, called firm 3, is already in an industry.

Two potential entrants, called firms 1 and 2, can each enter the industry by paying the entry cost of 2. First, firm 1 decides whether to enter or not. Then, after observing firm 1's choice, firm 2 decides whether to enter or not. Every firm, including firm 3, observes the choices of firms 1 and 2.

After this, all of the firms in the industry (including firm 3)
compete in a Cournot oligopoly, where they simultaneously and
independently select quantities. The price is determined by the
inverse demand curve *p = 12-Q*, where Q is the total
quantity produced in the industry. Firm 3's total cost
is *c _{3}(q_{3}) =
q_{3}*. The total cost of the entering firm

What is the total quantity produced in the market?

Expert Answer

Answer #1

Game Theory Econ
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already operating as monopolists in two different industries (they
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firm 2’s industry and thus compete with firm 2 or enter firm 3’s
industry and thus compete with firm 3. Production in firm 2’s
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