game4 - Game 4 and Strategic deterrence No expansion/enter...

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Game 4 and Strategic deterrence
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No expansion/enter ± One consumer (1- λ ): Bertrand competition ± Two consumers ( λ ): p=10 for both ± Expected payoffs: ² 10 λ for incumbent ² 10 λ -E for entrant ± Payoffs (3,1)
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Expansion/enter ± One consumer: Bertrand competition ± Two consumers: ² No pure strategy equilibrium ² Incumbent: setting p=10 can always guarantee one sale, so π= 10 ² So incumbent will never charge less than 5 ² Entrant can charge 5 and guarantee a sale ² Prediction: randomized strategies ± Expected profits for incumbent = 10 ± Expected profits for entrant = 5 ² Overall expected profits: ± Incumbent = 0.3*10-k=3-6=-3 ± Entrant = 0.3*5-E=1.5-2=-0.5
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Expansion, not enter
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game4 - Game 4 and Strategic deterrence No expansion/enter...

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