Firm 1 has two options: enter a new market (E) or stay out (O). If Firm 1 decides to enter the market, Firm 2, the incumbent, can either fight (F) or accommodate (A). If Firm 2 chooses to fight, Firm 1 can choose to compete with Firm 2 by raising their advertising budget (C) or keep their planned budget the same (NC).The payoffs to Firm 1 and 2 if Firm 1 chooses O are 5 and 4. If Firm 2 chooses A, the payoffs are 3 and 0. The payoffs from E followed by F and NC are 1 and 2. The payoffs from E followed by F and C are x and 1. The parameter x is an integer and x > 1.What is the lowest integer value of x so that Firm 1 will definitely choose E in a subgame perfect equilibrium of this game?Write your answer as an integer (no decimal points).

Let's consider if Firm 1 can do better by setting a price higher than thesolution to question (b). The downside of firm 1's setting a higher price isthat it will lose some of the market. The upside is that it will charge moreto any customer it keeps. The next question gets you to work out just howmany customers buy from firm 1 when the prices are 'close'. (c) (10 points) Suppose that prices p1 and p2 are close enough that themarket is split between the two firms. Use expressions (a) and (b)above to find the location of the customer who is exactly indifferentbetween buying from firm 1 and buying from firm 2. Use your answerto argue that, when the market is split, firm 1's demand is given by: D1(p1; p2) = (p2 + t -p1)/2t, We now have all the information we need to calculate firm 1's best responseto each p2. When the market is split, firm 1's profits are given by u1(p1; p2) = (p1 -c)D1(p1,p2) =[p1 (p2 + t + c) -(p1)^2-c(p2+t)]/2t, Notice it follows from expressions (1) and (2), that for intermediate levels of p2, the best response of firm 1 to firm 2 setting some intermediate pricep2 is to set a price p1 that solves max p1[p1 (p2 + t + c) -(p1)^2-c(p2+t)]/2t, (d) (5 points) Given that for intermediate levels of p2, that the (partial) derivative of u1(p1; p2) with respect to p1 is (p2 + t + c)/2t, show that the best response for firm 1 for intermediate levels of p2,can be expressed as BR1(p2) = (p2 + t + c)/2, (e) (15 points) Draw a picture of the best responses of frms 1 and 2. Be careful to indicate in your picture what happens to BR1(p2) when p2 < c-t, and when p2 > 3t+c. [Hint: recall your answers to parts (a)and (b) above]. Draw the best response BR2(p1) on the same picture. (f) (10 points) Use algebra to find the Nash equilibrium.(g) (5 points) What is the equilibrium price when t = 0? Interpret youranswer. People sometimes say 'competition gets less fierce as productsbecome less similar and more differentiated'. How does this show upin our model?

ill in the blanks:Consider the department store market that has two rivals, DJs and Myer. Each firm can choose to either Advertise or Not Advertise. These choices are made simultaneously. The payoffs are given below in the following figure.  What is the total payoff for both Myer and DJs in the equilibrium? . Myer and DJs would be better off by choosing , respectively (write Advertise or Not). In that case, their total payoff would be .

In a sequential game, the firm which is the first to enter a new market may have the first mover advantage.Group of answer choicesTrueFalse

Consider Apple and Samsung considering developing an entering a new market (by developing a new type of device). The timing of the game is that Apple gets to choose whether to Enter (E) or to Not Enter (NE). Then, observing its rival’s choice, Samsung gets to choose whether to E or to NE. If both firms enter (E) the payoff is -5 to each firm. If both firms do not enter (NE) they each get a profit of 2. If one enters and the other chooses to NE, the entrant gets 10 and the other firm gets a profit of 0. Which statement is true?Group of answer choicesIn the outcome of the credible equilibrium Apple Enters, then Samsung also Enters; there is a second-mover advantageIn the outcome of the credible equilibrium Apple Enters, then Samsung chooses NE; there is a first-mover advantageIn the outcome of the credible equilibrium Apple chooses to NE, then Samsung Enters; there is a second-mover advantageIn the outcome of the credible equilibrium Apple chooses to NE, then Samsung also chooses to Not Enter; there is a first-mover advantageNone of the above

A firm that finds itself in a prisoners’ dilemma would get a higher payoff if it changed it’s strategy (assuming the other firm did not).Group of answer choicesFalseTrue