Question: Companies A and B are considering developing a new online platform. Suppose that A is ahead in the development process and that B is considering

Companies A and B are considering developing a new online platform. Suppose that A is ahead in the development process and that B is considering whether to enter the competition. If B stays out, it earns zero profit and A, being the monopolist earns a profit of RM1 billion. If B decides to enter and develop the rival platform, then A has to decide whether to accommodate B peacefully or fight in a price war. In the event of peaceful accomodation, each firm will make a profit of RM300 million. If there is a price war, each will lose-RM100 million.

  1. i)Draw the extensive form (game tree) for this game.
  2. ii)Find the subgame perfect Nash equilibrium.
  3. iii)Write the normal form of the game.

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