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Consider a two period game where an incumbent monopolist in an industry fears entry in the second period. The demand for the product is given by P = 100- Q, where Q is the total quantity produced in the market. Suppose the incumbent has a marginal cost of $24, while the entrant has a marginal cost of $38. In addition, each firm incurs a fixed cost of $200 in each period that it is in business. The incumbent monopolist can either charge a monopoly price in period 1 or a limit price. In period 2 the incumbent monopolist can again charge either a limit price or an accommodating price. The potential entrant firm has two strategies: either to enter or stay out at the beginning of period 2 after observing the price charged by the incumbent in period 1. a) Construct the extensive form of the game described above.

Microeconomics, Economics

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