Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Jin, the owner of a boba tea store in Ann Arbor, developed H Tea, a unique new product which is now a huge success. However,

Jin, the owner of a boba tea store in Ann Arbor, developed H Tea, a unique new product which is now a huge success. However, she is aware of a potential competitor that is eagerly searching for the recipe of H Tea. The key ingredient of H Tea is supplied by TeaEast, a drink manufacturer in China. Jin's store is making $80,000 annual profit from H Tea. If Jin signs an exclusive contract with TeaEast and pays $X to it, then TeaEast will not supply this key ingredient to any other boba tea store in the region. In this case, a potential competitor would earn $0 in revenue from a knockoff of H Tea. Without the exclusive contract, the potential competitor could acquire the key ingredient from TeaEast and make a similar productW Teaafter spending $Y fixed cost. In this case, the two boba tea stores will equally split the market (each gets half of H Tea's original profit). If Jin is indifferent between paying and not paying for the exclusive contract, assume she will pay. If the competitor (who is looking to introduce W Tea) is indifferent between entering and not entering, assume the competitior will enter. a. Jin will accommodate the competitor's entry and not pay for the exclusive contract with TeaEast when $X (cost of exclusive contract) is in the range of (fill in the blank), and $Y (competitor's fixed cost of entry) is in the range of (fill in the blank). b. Jin will purchase the exclusive contract with TeaEast to deter the competitor's entry when $X (cost of exclusive contract) is in the range of (fill in the blank), and $Y (competitor's fixed cost of entry) is in the range of (fill in the blank). c. Draw the game tree that illustrates the situation described in this question.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Lever Of Riches Technological Creativity And Economic Progress

Authors: Joel Mokyr

1st Edition

0195074777, 9780195074772

More Books

Students also viewed these Economics questions

Question

Feb. 1 Mar. 18 May 1

Answered: 1 week ago

Question

What is carpal tunnel syndrome?

Answered: 1 week ago