A large steel company is a monopolist in a European country. It faces potential entry by an upstart firm.

The profits for the monopolist is $80m per year with current technology. If entry occurs, the monopolist's profit is $40m and profitability of the entrant is estimated at $20m per year under current technology.

The monopolist is thinking of lobbying the government for tighter pollution control measures, which would require a change in technology and cost any steel firm that is in the industry an additional $25m per year in costs (subtracted from profit figures above).

Show this situation using a game tree, with the monopolist moving first to lobby or not, and then the entrant moving second to enter or not. Indicate the NE and describe. Comment on the importance of credibility in this context.