Question: A gas station at a rest stop along the highway
A gas station at a rest stop along the highway can pay the owner of the rest stop $ 40,000 to prevent a second station from opening. Without entry, the incumbent gas station’s profit is πi = $ 100,000. With entry, its duopoly profit would be $ 45,000 and the entrant would earn a profit of $ 30,000. Will the incumbent pay for exclusivity? Will entry occur? Use a game- tree diagram to answer these questions.
Answer to relevant QuestionsThe more an incumbent firm produces in the first period, the lower its marginal cost in the second period. If a potential rival expects the incumbent to produce a large quantity in the second period, it does not enter. Draw ...Before entry, the incumbent earns a monopoly profit of πm = $ 10 (million). If entry occurs, the incumbent and rival each earn the duopoly profit, πd = $ 3. Suppose that the incumbent can induce the government to require ...A prisoners’ dilemma game is played for a fixed number of periods. The fully rational solution is for each player to defect in each period. However, in experiments with students, players often cooper-ate for a significant ...To discourage people from breaking laws against speeding, society can increase the probability that someone exceeding the speed limit will be caught and punished, or it can increase the size of the fine for speeding. Explain ...Malee, who is risk averse, has two pieces of jewelry, each worth $ 1,000. She plans to send them to her sister’s firm in Thailand to be sold there. She is concerned about the safety of shipping them. She believes that the ...
Post your question