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5.3 (Note: This part of the question is independent from the information in parts 5.1 and 5.2). Two Firms ABC and XYZ are the only
5.3 (Note: This part of the question is independent from the information in parts 5.1 and 5.2). Two Firms ABC and XYZ are the only two competitors in a certain market. XYZ has recently introduced a new variety of product in the market at a high price and (as the only seller) is currently earning a prot of $300 million from this new product. If XYZ (as the only seller) sells its product at a low price, its profit would be $200 million. ABC does not yet have a product of this new variety to compete directly with XYZ's new product and is considering introducing such a new product. If ABC does introduce the new product, XYZ could adopt one of two strategies: (1) XYZ could continue to charge the high price, and ABC and XYZ would earn $200 million and $2 75 million, respectively, or (2) XYZ could charge a low price, in which case ABC and XYZ would each earn $10 million and $100 million respectively. Should ABC introduce the new product? Why or why not? Use a game tree to illustrate the profit possibilities. Remember to label all important parts of the diagram. Mark on the game tree the equilibrium path using the method of backward induction (i.e., roll back technique or looking forward and reasoning backward) learned in the course. What will be the payoffs to each rm
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