Consider the following predation game involving an incumbent and a potential ent

Question

Consider the following predation game involving an incumbent and a potential entrant. Payoffs are written with the potential entrant’s profits listed first and the incumbent’s listed second. The profit numbers represent discounted values over the life of the firms.

i) What is the equilibrium of this game?

ii) Would the equilibrium be different if the (-5, 0) payoff were instead (-5, 8)?

B. 125 points] Consider the following predation game involving an incumbent and a potential entrant. Payoffs are written with the potential entrant's profits listed first and the incumbent's listed second. The profit numbers represent discounted values over the life of the firms. (0, 10) Stays out (-5, 00 Predates Potential Entrant Enters Incumbent (4, 6) Accommodates i) What is the equilibrium of this game? ii) Would the equilibrium be different if the (-5, 0) payoff were instead C5, 8)?

Explanation / Answer

The equilibrium is Potential entrant enters and incumbent accomodates.

The new equilibrium will be Potential. entrant enters and incumbent predates.

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