Before entry, the incumbent earns a monopoly profit of m = $10 (million). If entry occurs, the

Before entry, the incumbent earns a monopoly profit of πm = $10 (million). If entry occurs, the incumbent and entrant each earn the duopoly profit, πd = $3. Suppose that the incumbent can induce the government to require all firms to install pollution-control devices that cost each firm $4.

Show the game tree. Should the incumbent urge the government to require pollution-control devices?

Why or why not? (See Solved Problem 13.3.)