Consider the following game. There are two players: an incumbent (denoted by I) and a potential entrant to the market (d

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Consider The Following Game There Are Two Players An Incumbent Denoted By I And A Potential Entrant To The Market D 1 (260.76 KiB) Viewed 29 times

Consider the following game. There are two players: an incumbent (denoted by I) and a potential entrant to the market (denoted by E). The entrant has two actions: it can either enter the market in which the incumbent operates, or not enter. The incumbent has two actions: it can either fight the entrant, or accommodate. The payoffs are as follows: if E enters and I fights, E gets -5 and I gets 5. If E enters and I accommodates, then both get the payoff 10. If E does not enter, I gets 20 and E gets 0. 1. Suppose that both players act simultaneously. Depict the game with the help of a game matrix. (a) Find the Nash equilibria in pure strategies. (b) Find the Nash equilibria in mixed strategies. 2. Now suppose that E moves first, and then I follows. (a) Depict this sequential game with the help of a game tree. (b) What is the equilibrium of the game? Why is it different to one of the Nash equilibria in pure strategies (explain the reasoning in 4-5 sentences)?