Question
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.
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