Two firms simultaneously decide whether to Enter (E) or stay out (O). The state of the market can be strong or weak and

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Two Firms Simultaneously Decide Whether To Enter E Or Stay Out O The State Of The Market Can Be Strong Or Weak And 1 (45.79 KiB) Viewed 53 times

Two firms simultaneously decide whether to Enter (E) or stay out (O). The state of the market can be strong or weak and it is known by Firm 1 only. Firm 2 believes that a strong and a weak state are equally likely. Letting Firm 1 be the row choser, the payoffs when the market is weak are: E O E 0 1,1 2, 2 3, 2 2, 1 The payoffs when the market is strong are: E O E O 8, 2 3, 2 Which of the following statements is correct: A. In all Bayesian equilibria Firm 2 chooses O. B. There is a unique Bayesian equilibrium. C. In all Bayesian equilibria Firm 2 chooses E. D. In all Bayesian equilibria Firm 1 chooses strategy OE. 5, 3 2, 3