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Home Q & A Board Other Fields Homework Help Business Economics
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pirex pirex
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Posts: 634
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7 years ago
Suppose two firms, A and B, are simultaneously considering entry into a new market. If neither enters, both earn zero. If both enter, they both lose 100. If one firm enters, it gains 50 while the other earns zero. Set up the payoff matrix for this game and determine if any Nash equilibria exist. Can you predict the outcome? What if firm A gets to decide first?
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Microeconomics

Microeconomics


Edition: 6th
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#1
7 years ago
See the above figure. There are two Nash equilibria; either firm A is a natural monopoly or firm B is a natural monopoly. It is difficult to predict the outcome since the firms decide simultaneously. If firm A has the opportunity to choose first, it will enter, and firm B will not.
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