Biology Forums - Study Force

Figure 14-2

The government of a developing country plans to award two firms, Gigacom and Xenophone, the exclusive rights to share the market for high speed internet service. Gigacom and Xenophone can both provide the service either via television cable lines or via direct subscriber line (DSL). Suppose the government is considering a proposal to delay one firm's entry into the market on the grounds that it wants to prevent "harmful" competition. Figure 14-2 shows the decision tree for this game.

Refer to Figure 14-2. If the government delays Gigacom's entry and Xenophone moves first, is a threat by Gigacom that it will provide DSL service if Xenophone provides cable service a credible threat?

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No, because as a second mover, it has no choice but to abide by the choices of the first mover.

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Yes, because Gigacom's DSL service will drive Xenophone out of business.

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Yes, Xenophone stands to lose $3 million in profit.

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No, because Gigacom will lose $4.5 million in profits if it carries out its threat.

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