The left diagram below shows a standard entry game where the entrant (E) first decides whether or not to enter and the incumbent (I) subsequently decides whether or not to accommodate entry through its choice of pricing. Before the game starts the incumbent threatens to fight if entry occurs. Identify the range of non-negative values for X which make this threat non-credible. If X is random with an expected value of 20 then will the game outcome depend on whether the entrant is risk neutral or risk averse? Briefly explain your answer. Suppose X is such that the threat is not credible and so entry occurs in the left diagram. However, before the game starts the incumbent can request from a regulator that all firms which operate in the industry must pay a certification fee of size F. Use the diagram on the right to identify the range of values of F which ensure that the incumbent chooses to request certification, and the entrant chooses not to enter. Do not enter 70, 30 Do not request Enter D. 105 certification First payoff is for E E Second payoff is for ! Stay Our E PO is for -25,10 2 PO is for E Fight 70 -F. 30 . F Enter Enter the market Accommodate Request certification 30,00 -X Stay Out 15 -FO HTML ED BIYA N . TEENTIXXEE -2 86 6 0 1 1 12 - Paragraph The threat is not credible for X ranging from 0 to 30. If X is random with an expected value of 20 then risk aversion may result in accommodation Certification is requested and there is no entry with F ranging from 30 to 35