Question

Suppose two firms, A and B, are simultaneously considering entry into a new market. If neither enters,both earn zero. If both enter, they both lose 100. If one firm enters, it gains 50 while the other earns zero. Set up the payoff matrix for this game and determine if any Nash equilibria exist. Can you predict the outcome? What if firm A gets to decide first?

Answer 1

Answer: The answer is as follows:

Explanation:

The payoff matrix for this game is shown in the image.

The nash equilibrium in this game exist when both the firms do not enter into a new market. The nash equilibrium outcome is (0,0), at this choice both the firms didn't loose anything.

If firm A gets to decide first then it would choose not to enter into the new market, this will gives (0,50) & (0,0) outcome and if it chooses to enter then this will gives (-100,-100) & (50,0).