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Cheetah Air and Eagle Air are competitors in airline industry. First, Cheetah Air decides whether to begin air service to Maui or not. Then,
Cheetah Air and Eagle Air are competitors in airline industry. First, Cheetah Air decides whether to begin air service to Maui or not. Then, Cheetah Air learns whether demand for the air service is high or low. This information about the market spills over to Eagle Air. Both know that demand will be high with probability 60% and low with 40%. After observing the market demand level, Eagle Air does enter or stay out. This situation is represented in the following game tree. The first number of each vector at terminal nodes is Cheetah's payoff and the second number is Eagle's payoff. Find the rollback equilibrium of the game. Cheetah Air begin air service to Maui do not create Maui route demand for air service to Maui demand for air service to Maui 0.6 (high) 0.4 (low) 0.6 (high) 0.4 (low) Eagle Air Eagle Air Eagle Air Eagle Air enter stay out enter stay out enter stay out enter stay out 3 3 10 0 -5 0 0 10 0 0 Anticipating Eagle Air's response, Cheetah computes its expected payoff of taking "begin" and "does not create." The expected payoff of "begin" is while the expected payoff of "does not create is
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