Question: Before entry the incumbent earns a monopoly profit of m
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 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?
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