1)Two major supermarkets, Sainsbury's (S) and Tesco (T), are attempting to determine whether to enter a new market. First, Sainsbury's must decide whether to enter the market or stay out. Tesco then observes Sainsbury's action and also decides whether to enter or stay out. The payoffs to each firm (in billions) are: if both Sainsbury's and Tesco enter, the payoffs are 5 for S and -15 for T. If S enters and T does not, payoffs are 15 for S, and 0 for T. If S does not enter and T does, payoffs are 0 and 15. If both S and T do not enter, then payoffs are 30 and 10 respectively.

a)Draw the game tree. [4 marks]

b)Determine the subgame perfect Nash equilibrium, i.e. the one that satisfies backward induction. [4 marks]

c)What is a first-mover advantage? Does Sainsbury's have a first-mover advantage in this game?[3 marks]