Martha is considering entering a market which is currently dominated by her rival Steve. If Martha does not enter she will make no profit and Steve will earn $5000. If Martha does enter then Steve can fight or accommodate her and Martha can observe his decision. If Steve fights Martha, Martha can

• Fight back resulting in a loss of $2000 for her and a loss of $1000 for Steve , or
• Exit the market resulting in a loss of $3000 for her and a profit of $1000 for Steve

If Steve does not fight Martha, Martha can

• Compete aggressively resulting in no profit for her and a loss of $ 3000 for Steve or
• Cooperate with Steve, resulting in a profit of $1000 for her and $2000 for Steve

There is no information asymmetry in this game.

1. Draw a game tree to represent the strategic interaction above.
2. Will you advise Martha to enter the market?