Discuss the following:
Q: Given the following payoff matrix, ( a) indicate the best strategy for each firm. ( b) Why is the entry-deterrent threat by firm A to lower the price not credible to firm B? (c) What could firm A do to make its threat credible without building excess capacity? (Refer to Tables Sheet)
NOTE:
P10(a):The strategies for firm A are low price and high price and the strategies for firm B are enter and don't enter. What is the best (optimal) strategy for each firm?
P10(b) is asking whether firm A would use the low price as a threat if firm B enters?
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Firm B
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Enter
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Don't Enter
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Firm A
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Low Price
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(3,-1)
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(3,1)
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High Price
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(4,5)
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(6,3)
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