If an Incumbent Cannot Commit and Faces an Identical Potential

question 8

Multiple Choice

If an incumbent cannot commit and faces an identical potential entrant with relatively high fixed costs that are below the level where entry is blockaded,the incumbent will

• A) produce the Cournot duopolist level of output.
• B) produce the Stackelberg leader level of output.
• C) set price equal to marginal cost.
• D) produce a level of output that is greater than the Stackelberg leader level of output.

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Definitions:

Performance

The act of fulfilling the duties or requirements specified in a contract or agreement.

Incidental Beneficiary

A third party who might receive a benefit from a contract between two other parties, although the contract is not primarily intended for the benefit of the third party.

Assignee

A person or entity to whom a contract or legal right is transferred.

Statute of Frauds

A legal concept that requires certain types of contracts to be executed in writing and signed by all parties to be legally enforceable.