156 in the text we considered a sequential move game

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threat that they would reject the offer (and therefore both parties lose). 15.6 In the text, we considered a sequential-move game in which an entrant was considering entering an industry in competition with an incumbent firm (Figure 15.1). Consider now that the entrant, if fought, has the possibility of withdrawing from the industry (at a loss of 1 for the entrant and a gain of 8 for the incumbent), or staying (at a loss of 5 for each player). What is the equilibrium of this game? Discuss if the entrant is better off with or without the ability to withdraw. The equilibrium in this game is the move where each person is maximizing their payoff when considering the move of the other player. In this game, the equilibrium would be for the entrant to withdraw because the loss would only be 1 instead of 5. The entrant is better off with the ability to withdraw because the loss would be much less. 16.3 You’ve entered into a contract to purchase a new house, and the closing is scheduled for next week. It’s typical for some last-minute bargaining to occur at the closing table, where sellers often try to tack on extra fees. You have three options for the closing: 1) attend yourself, 2) send an attorney authorized to close only per the previously negotiated terms, or 3) pre-sign all the closing documents per the current terms and not attend the closing. Which of these would be most advantageous from a bargaining position?

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