15-6 Entry Game with Withdrawal

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.

Froeb, L. M., McCann, B. T., & Ward, M. R. (2016). Managerial economics: A problem solving approach (4 ed.). Boston,MA: Cengage Learning.