There are two firms, a potential entrant and an incumbent. At stage 1, the incumbent chooses its capacity, high (H) or low (L). In stage 2, the entrant either stays out of the market or enters with either high or low capacity. For both firms, high-capacity costs 18 and low-capacity costs 15. The payoff matrix shows the gross payoffs (i.e. capacity costs have not been deducted) if both firms are active at the second stage.

Incumbent

L H

Entrant L 18,18 4, 22

H 22, 4 10,10

If there is no entry, the incumbent earns 30 gross income from capacity choice L and 32 from the choice of H.

In the payoff matrix suppose that when both firms choose H, instead of 10 as shown, each firm gets gross payoff of 14. All the other cells in the matrix remain the same. Would the new matrix make economic sense?