20

The credibility of Threats:

Find all the Nash Equilibrium. Point out in which equilibrium there exists an incredible threat. Try to find the SPNE and see whether the equilibrium that has an incredible threat is now eliminated from the equilibrium set.

Entrant Incumbent Fight if the entrant is in Accommodate if the entrant is in Stay Out (0,5) (0,5) In (0,0) (2.5,2.5)