Joe's Imports Is Currently the Only Dealer for Imported Sporto

question 115

Multiple Choice

Joe's Imports is currently the only dealer for imported Sporto autos on the East Coast, but Fred's Autos may enter the import market and start selling Sporto cars in the East Coast market during the coming year. Joe's Imports can pay the Sporto manufacturer for exclusive East Coast marketing rights, which would deter the entry of Fred's Autos into the market. The payoffs from the possible actions are measured in millions of dollars per year, and the possible outcomes of the sequential entry game are summarized in the following matrix:

What is the equilibrium outcome from this sequential entry game?

• A) Joe's Imports buys the marketing rights, and Fred's Autos cannot enter the market.
• B) Joe's Imports buys the marketing rights, and Fred's Autos enters the market.
• C) Joe's Imports does not buy the marketing rights, and Fred's Autos enters the market.
• D) Joe's Imports does not buy the marketing rights, but Fred's Autos does not enter the market.

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Definitions:

Ruby

A precious gemstone known for its vibrant red color, commonly used in jewelry and as an industrial abrasive.

Consumer Surplus

The difference between the total amount that consumers are willing and able to pay for a good or service versus the total amount they actually pay.