Firm B
Enter Don't Enter
Low Price (3,21) (3,1)
Firm A High Price (4,5) (6,3)
QUestion: Show how the payoff matrix in the table for Problem 10 might change if firm A were to make a credible threat to lower the price by building excess capacity to deter frim B from entering the market. (Question 10 asked: 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?
Firm B
Enter Don't Enter
Low Price (3,21) (3,1)
Firm A High Price (4,5) (6,3)
QUestion: Show how the payoff matrix in the table for Problem 10 might change if firm A were to make a credible threat to lower the price by building excess capacity to deter frim B from entering the market. (Question 10 asked: 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?
Related textbook solutions
Related questions
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?
| Firm B | |||
| Enter | Donât Enter | ||
| Firm A | Low Price | (3,-1) | (3,1) |
| High Price | (4,5) | (6,3) | |
