Ford invites Clarion to set up a plant at Ford's industrial complex in Brazil where Clarion will build navigation system

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Ford Invites Clarion To Set Up A Plant At Ford S Industrial Complex In Brazil Where Clarion Will Build Navigation System 1 (49.85 KiB) Viewed 30 times

Ford invites Clarion to set up a plant at Ford's industrial complex in Brazil where Clarion will build navigation systems for installation in the Ford cars produced there. If Clarion builds the plant, it would have no buyers for the plant's output except Ford. If Clarion does not build the plant, neither firm benefits. If Clarion does build the plant, Ford considers paying three possible prices for systems: P, <P2<P3. Price p, is below Clarion's average variable cost, Clarion would produce nothing, so Clarion would be out of pocket for the cost of the plant, $ - 400 million), and Ford would get nothing. If Ford pays price P2, Clarion would more than cover its variable costs but still lose $-360 and Ford would gain $560. At price P3, both firms would gain $100. Assume for simplicity the game tree is illustrated in the figure to the right. What is the subgame perfect Nash equilibrium? - A. the Nash equilibrium is for Clarion to not open and Ford to pick P3 if Clarion enters. B. the Nash equilibrium is for Clarion to not open and Ford to pick p, if Clarion enters. c. the Nash equilibrium is for Clarion to not open and Ford to pick P2 if Clarion enters, D. The game does not have a Nash equilibrium. E. the Nash equilibrium is for Clarion to open and Ford to pick P2 If Clarion enters.