Figure $14-1$

The Lexus$-$BMW Entry Game

Assume that Lexus $(L)$ is the first automobile company to produce a luxury class hybrid automobile and is the only such company for the past four years. BMW is now considering producing its own luxury hybrid automobile and Lexus must decide whether or not to lower the price of its luxury hybrid to counter BMW$\text{'}$s entry into the luxury hybrid niche.

Refer to Figure $14-1.$ If Lexus lowers its price, will this deter BMW from entering the market?

No$,$ because BMW will be able to break Lexus' first$-$mover advantage.

Yes, because BMW will make a smaller profit than Lexus if it chooses to compete.

Yes, because BMW stands to lose $$100$ million if it competes with Lexus.

No$,$ because BMW will still make a profit of $$120$ if it competes with Lexus.