Professor Binmore has a monopoly in the market for undergraduate game theory textbooks. The time-discounted value of Professor Binmore's future earnings is $2,000. Professor Ditt is considering writing a book to compete with Professor Binmore's book. With two books amicably splitting the market, the time-discounted value of each professor's future earnings would be $200. Professor Binmore can attack the credibility of Professor Ditt's in order to deter the entry. Since fighting an entrant is costly, Professor Binmore's payoff will be substantially reduced. Assume that Professor Binmore's payoff in case of entry deterrence is the same, whether or not the entry by Professor Ditt occurs.

Consider the following four scenarios. For each of the scenarios, show an extensive representation of this game. In which of the four scenarios will Dr. Binmore deter the entry of Professor Ditt into his market?

Professor Binmore threatens to cut his price and attack the credibility of Professor Ditt's book so that Professor Ditt would lose $8. In so doing, Professor Binmore would still make $210 over time.

Professor Binmore threatens to cut his price and attack the credibility of Professor Ditt's book so that Professor Ditt would only make $8. In so doing, Professor Binmore would still make $100 over time.

Professor Binmore threatens to cut his price so that Professor Ditt would lose $800. In so doing, Professor Binmore would lose $80 over time.

Professor Binmore threatens to cut his price so that Professor Ditt would lose $80. In so doing, Professor Binmore would just break even over time.