Problem: Sequential-Move Game Strategy
In the text, we considered a sequential-move game in which an entrant was considering entering an industry in competition with an incumbent firm. Consider now that the entrant, if fought, has the possibility of withdrawing from the industry (at a loss of 1 for the entrant and a gain of 8 for the incumbent), or staying (at a loss of 5 for each player).
What is the equilibrium of this game?
Discuss if the entrant is better off with or without the ability to withdraw.
