1. Strategic Commitment and Entry Deterrence. An Incumbent monopolist (INC) is threat- ened by an Entrant (E). If the Entrant actually enters, the Incumbent can either Accom- modate entry (A) or Fight (F) by starting a price war. Additionally, prior to entry the Incumbent can make itself Aggressive by paying a sunk cost K. Otherwise, it is Passive Pass. The entrant knows whether the Incumbent has played Agg or Pass. Here is the game in extensive form, including payoffs (r*,*'). NOTE that the Entrant's payoff is first! INC Agg Pass E E In Out In Out INC INC (0,7 M - K) (0,74M) F A (",) (70,- K) (W,7") a. Suppose 7M = 100,74 = 30, and -10. What is the equilibrium if K = 0? Find a value of K that such that the Incumbent will deter Entry by playing Aggressive. b. For unknown values of M,", and ", solve the game using backward induction. What 2 conditions must be satisfied for entry deterrence to work? c. Find the range of all values of K that such that the Incumbent will play Agg and deter entry 1. Strategic Commitment and Entry Deterrence. An Incumbent monopolist (INC) is threat- ened by an Entrant (E). If the Entrant actually enters, the Incumbent can either Accom- modate entry (A) or Fight (F) by starting a price war. Additionally, prior to entry the Incumbent can make itself Aggressive by paying a sunk cost K. Otherwise, it is Passive Pass. The entrant knows whether the Incumbent has played Agg or Pass. Here is the game in extensive form, including payoffs (r*,*'). NOTE that the Entrant's payoff is first! INC Agg Pass E E In Out In Out INC INC (0,7 M - K) (0,74M) F A (",) (70,- K) (W,7") a. Suppose 7M = 100,74 = 30, and -10. What is the equilibrium if K = 0? Find a value of K that such that the Incumbent will deter Entry by playing Aggressive. b. For unknown values of M,", and ", solve the game using backward induction. What 2 conditions must be satisfied for entry deterrence to work? c. Find the range of all values of K that such that the Incumbent will play Agg and deter entry