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The next step is to decide whether to enter the market before or after D enters, and which strategies to follow in both cases. Remember
The next step is to decide whether to enter the market before or after D enters, and which strategies to follow in both cases. Remember D already has a date when they will start operations. The possible strategies for each rm when they are the incumbent. if they are the rst to enter the market, are ght the entrant. identied as strategy f. or not ght the entrant, identied as strategy nf. When the rms are the second firm in the market, they are the entrant, they also have two strategies, in this case the strategies are enter aggressivefy, which you will indicate as strategy a, or enter softly, identified as strategy 5. Below you can find a summary of the information for the two cases together with the corresponding payoffs for each player: Case 1: A becomes the incumbent in the market and D the entrant. D decides whether to enter with strategy a or with strategy s. and A responds with strategy f or strategy nf. The payoffs in this case are: . If A chooses f and D chooses a, A gets 1 and D gets 1 a b. If A chooses nf and D chooses a. A gets 3 and D gets 5 c. If A chooses f and D chooses s, A gets 4 and D gets 3 d. If A chooses nf and D chooses s. A gets 6 and D gets 4 Case 2: D becomes the incumbent in the market and A the entrant. A decides whether to enter with strategy a or with strategy s. and D responds with strategy f or strategy nf. The payoffs in this case are: a. If D chooses f and A chooses a, D gets 1 and A gets 0 b. If D chooses nf and A chooses a, D gets 4 and A gets 5 c d . If D chooses f and A chooses s, D gets 6 and A gets 2 . if D chooses nf and A chooses s. D gets 6 and A gets 4 2. Considering the information above, what would you recommend A does, being the first to operate in the market, or wait until D starts operations and then enter the market? Justify your answer using a suitable framework and support your arguments with the appropriate analysis and results. (15 marks)
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