Question
28. Firm B is the incumbent firm in the market, and Firm A is a potential entrant. Firm A must decide whether to enter the
28. Firm B is the incumbent firm in the market, and Firm A is a potential entrant. Firm A must decide whether to enter the market or stay out of the market. If Firm A decides to enter the market, Firm B must decide whether to engage in a price war (play "hard"), or not (play "soft"). By playing "hard", Firm B ensures that Firm A makes a loss of $1 million, but Firm B only makes $1 million in profits. On the other hand, if Firm B plays "soft", the entrant takes half of the market, and each firm earns profits of $5 million. If Firm A stays out, it earns zero while Firm B earns $10 million. Which of the following set of strategies is a Nash Equilibrium?
A.(Enter; Soft)
B. (Not Enter)
C. (Enter; Hard)
D. (Not Enter, Hard)
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