Suppose That Currently There Are No Airlines Serving the City

question 18

Multiple Choice

Suppose that currently there are no airlines serving the city of South Podunk. Both Accommodating Airlines and Friendly Flyers are looking to enter that market. (They are the only two.) The figure shows in extensive form the possible outcomes of the two firms' decisions. The payoffs represent, in thousands per month, the profit (or loss) the firm will realize from its decision. Assuming the two firms have perfect information about this game, what can we conclude about the existence of a Nash equilibrium?

• A) The solution to the game is a Nash equilibrium.
• B) There are multiple Nash equilibria for this game.
• C) There is no Nash equilibrium for this game.
• D) There is a Nash equilibrium for this game, but it does not coincide with the solution to the game.

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