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Samsung wants to prevent Whirlpool from entering the market for high-priced, front-load washing machines. Even though front-load machines are more costly to manufacture than top-loaders, Samsung is earning economic profit as the only firm making front-loaders for upscale consumers. The following payoff table shows the annual profits (in millions of dollars) for Samsung and Whirlpool for the pricing and entry decisions facing the two firms.

Samsung
Whirlpool P = $500 P = $1,000
Stay out $0, $20 $0, $34
Enter -$5, $15 $17, $17

a. Can Samsung deter Whirlpool from entering the market for front-load washing machines by threatening to lower price to $500 if Whirlpool enters the market? Why or why not?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M945504

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