Consider the Following Entry Game: Here,firm B Is an Existing

question 6

Multiple Choice

Consider the following entry game: Here,firm B is an existing firm in the market,and firm A is a potential entrant.Firm A must decide whether to enter the market (play "enter") or stay out of the market (play "not enter") .If firm A decides to enter the market,firm B must decide whether to engage in a price war (play "hard") ,or not (play "soft") .By playing "hard," firm B ensures that firm A makes a loss of $1 million,but firm B only makes $1 million in profits.On the other hand,if firm B plays "soft," the new entrant takes half of the market,and each firm earns profits of $5 million.If firm A stays out,it earns zero while firm B earns $10 million.Which of the following are perfect equilibrium strategies?

• A) (enter, soft)
• B) (not enter, soft)
• C) (enter, hard)
• D) (not enter, hard)

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Definitions:

Radiopaque

Impenetrable to the X-ray or other forms of radiation.

Impenetrable

Impossible to pass through or enter, often used to describe dense materials or abstract concepts like complex theories.

Radiation

The emission of energy as electromagnetic waves or as moving subatomic particles, especially high-energy particles that cause ionization.

Mammogram

An X-ray examination of the breast used to detect and diagnose breast diseases, especially breast cancer, in women.