Professor Binmore Has a Monopoly in the Market for Undergraduate

question 30

Multiple Choice

Professor Binmore has a monopoly in the market for undergraduate game theory textbooks.The time-discounted value of Professor Binmore's future earnings is $2,000.Professor Ditt is considering writing a book to compete with Professor Binmore's book.With two books amicably splitting the market, the time-discounted value of each professor's future earnings would be $200.If there is full information (each professor knows the profits of the other) , under what conditions could Professor Binmore deter the entry of Professor Ditt into his market?

• A)Professor Binmore threatens to cut his price and attack the credibility of Professor Ditt's book so that Professor Ditt would loose $8.In so doing, Professor Binmore would still make $210 over time.
• B)Professor Binmore threatens to cut his price and attack the credibility of Professor Ditt's book so that Professor Ditt would only make $8.In so doing, Professor Binmore would still make $100 over time.
• C)Professor Binmore threatens to cut his price so that Professor Ditt would loose $800.In so doing, Professor Binmore would loose $80 over time.
• D)Professor Binmore threatens to cut his price so that Professor Ditt would loose $80.In so doing, Professor Binmore would just break even over time.
• E)None of the above.

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