4. Two players compete in a sequential move game that is only played once. Player A moves first and must choose how much to invest in capacity (i.e. high capacity or low capacity). 2 Firm B must then make a choice on price. At each of its decision nodes, it can choose a low, medium or high price. Assume the following payoff tree where the first number represents the payoff of firm A, and the second number the payoff of firm B. (a) Does the game exhibit competitive interdependence? Justify your answer. (3 marks) (b) Is ("high capacity", "high price if A chooses high capacity, and medium price if A chooses low capacity") a Nash equilibrium set of strategies? Justify your answer. (3 marks) (c) Could the addition of a very high capacity option for player A affect your answer in part (b)? Justify your answer. (3 marks)

4. Two players compete in a sequential move game that is only played once. Player A moves rst and must choose how much to invest in capacity (i.e. high capacity or low capacity). Firm B must then make a choice on price. At each of its decision nodes, it can choose a low, medium or high price. Assume the following payoff tree where the rst number represents the payoff of rm A, and the second 11 (a) Does the game exhibit competitive interdependence? Justify your answer. (3 marks) (b) Is (\"high capacity\