Airbus decides whether to enter airplane market. Boeing, who was until now the only airplane manufacturer, observes this decision. If Airbus enters, then both firms decide simultaneously whether to advertise. Otherwise, Boeing alone decides whether to advertise. With two firms in the market, each firm earns a profit of $30 million if they both advertise and $ 50 million if they both do not advertise. If only one firm advertises, then it earns $ 60 million and the other earns $ 10 million. If Boeing is solely in the industry, it earns $ 40 million if it advertises and $ 35 million if it does not advertise. Airbus earns nothing if it does not enter.

a) Please represent extensive form and the game

b) Please represent the strategic form of the game

c) Is there any dominant or dominated strategy for any player? If so, please highlight all dominant strategies with a star and all dominated strategies with a circle both in strategic and in extensive form.

d) Assume that both players are rational, but they both DON'T know whether the other player is rational. What can you say about the outcome of the game? (keep your answer short, 1-2 sentences)

e) Now consider a modified Payoff of the game: If Airbus does NOT enter the market, and Boeing decides to do NO advertising, it earns $ 50 million instead of $ 35 million. What can you say now the outcome of the game if you assume that

i) both players are rational, but they both DON'T know whether the other player is rational. (1-2 Sentences only)

ii) both players are rational, and they both know that the other player is rational too. (1-2 sentences)