Refer to the Normal-Form Game of Price Competition Shown Below

question 125

Multiple Choice

Refer to the normal-form game of price competition shown below. Firm B is the incumbent facing potential entry from its rival, firm A. Firm A's strategies consist of {entry, stay out}. Firm B's strategies are then {hard if entry; hard if stay out; soft if entry; soft if stay out}. Find the subgame Nash equilibrium to this game, if one exists.

• A) Firm A plays {stay out}; firm B plays {hard if entry}.
• B) Firm A plays {entry}; firm B plays {hard if entry}.
• C) Firm A plays {entry}; firm B plays {soft if entry}.
• D) There is no subgame Nash equilibrium to this game.

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Definitions:

Equipment

Refers to tangible assets used in the operation or production process of a business, such as machinery, tools, and vehicles.

Double-Declining-Balance

An accelerated method of depreciation where the asset's book value is decreased at double the rate of traditional straight-line depreciation.

Scrap Value

The expected financial return on an asset when it is sold after its useful life has ended.

Equipment

Tools or machines required for a specific task or operation, typically in industry, business, or sports.