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Unformatted text preview: e lowest value of F such that the incumbent firm prefers to deter entry. Problem 3 Consider the example from lecture on November 9th about the Supreme Court decision involving Japanese firms in the consumer electronics industry. Suppose the Japanese firms were indeed predating for 20 years in the hope that in the 21st year and thereafter they could charge a monopoly price. Suppose that the annual loss is $1 million for each of the first 20 years, and let πm be the annual flow of monopoly profits thereafter. If the interest rate is 10%, calculate how high πm would have to be in order for the predation strategy to be profitable. [Hint: The discount fact...
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- Fall '07