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Question - Firm Y is considering whether to enter a market that is dominated by Firm Z. If it doesn't enter, it expects to earn $10m, as it did last year, and Firm Z will earn $25m. If Firm Y does enter the market, its profits depend on whether Firm Z responds by either charging a high price or a low price. The estimated payoffs if Firm Y enters are:

If Firm Z responds by charging a high price, Firm Y loses $5 and Firm Z earns $15. If Firm Z responds by charging a low price, Firm Y earns $15 and Firm Z earns $20.

Represent the strategic interactions between Firm Y and Firm Z in a game tree (i.e. in extensive form). Should Firm Y enter the market?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M92571923
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