Professor Binmore has a monopoly in the market for undergraduate game theory textbooks. The time-discounted value of Professor Binmore's future earnings is $2,000. Professor Ditt is considering writing a book to compete with Professor Binmore's book. With two books amicably splitting the market, the time discounted value of each professor's future earnings would be $200. If there is full information (each professor knows the profits of the other), under what conditions could Professor Binmore deter the entry of Professor Ditt into his market? (More than one answer may, in principle, be correct).

A. Professor Binmore threatens to cut his price so that Professor Ditt would loose $200. In so doing, Professor Binmore would loose $20 over time.

B. Professor Binmore threatens to cut his price so that Professor Ditt would loose $20. In so doing, Professor Binmore would just break even over time.

C. Professor Binmore threatens to cut his price and attack the credibility of Professor Ditt's book so that Professor Ditt would loose $2. In so doing, Professor Binmore would still make $190 over time.

D. Professor Binmore threatens to cut his price and attack the credibility of Professor Ditt's book so that Professor Ditt would only make $2. In so doing, Professor Binmore would still make $100 over time.

E. None of the above.

Answer rating: 100% (QA)

Option a is correct Professor Binmore has a monopoly the market for und... View the full answer