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content area left Part 1 Ford invites Clarion to set up a plant at Ford's industrial complex in Brazil where Clarion will build navigation systems
content area left Part 1 Ford invites Clarion to set up a plant at Ford's industrial complex in Brazil where Clarion will build navigation systems for installation in the Ford cars produced there. If Clarion builds the plant, it would have no buyers for the plant's output except Ford. If Clarion does not build the plant, neither firm benefits. If Clarion does build the plant, Ford considers paying three possible prices for systems: p 1less thanp 2less thanp 3. Price p 1 is below Clarion's average variable cost, Clarion would produce nothing, so Clarion would be out of pocket for the cost of the plant, $negative 500 (million), and Ford would get nothing. If Ford pays price p 2, Clarion would more than cover its variable costs but still lose $negative 450 and Ford would gain $700. At price p 3, both firms would gain $125. Part 2 Assume for simplicity the game tree is illustrated in the figure to the right. What is the subgame perfect Nash equilibrium
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