the sequential game being played between an incumbent firm (Firm 1) and a potential entrant (Firm 2). Firm 1 first decides whether to expand the capacity of their plant ("Invest" or "Not invest"). Firm 2 observes Firm 1's decision and then decides whether to enter the market and compete or to stay out. The capacity investment, while involving a fixed cost, allows the incumbent to produce output at a lower marginal cost than the potential entrant. The profit (in millions) for each firm under each scenario is shown in the game tree below:

Firm 1 Invest Not Invest Firm 2 Firm 2 Enter Stay Enter Stay Out Out 3, -2 5,0 4, 1 6,0