SPF Enterprises is considering entering a new pharmaceutical market currently dominated by Jolax, Inc. which has a monopoly position. Assume SPF is the first mover. If SPF does not enter, Jolax can continue to charge a high price, with a NPV of $5 million. If SPF does enter, Jolax has two strategies: a) continue to charge the high price, which means SPF would gain market share; b) drastically lower its price, depriving SPF of any significant market share, but also reducing profitability for both firms. For strategy a), the NPVs of Jolax and SPF would be $3 million and $2 million respectively. If Jolax drops its price, the respective NPVs are $0 and negative $1 million.

[15 points] How would you advise SPF to proceed?

[5 points] Can you think of a third strategy for Jolax?