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Question
Acme is currently the only grocery store in town.? Bi-Rite is thinking of entering this market. They will play the following game.? First, Bi-Rite will decide whether or not to enter. If it does not? enter, then the game? ends, Acme earns a payoff of ?$200 ?, and? Bi-Rite earns a payoff of ?$0. If? Bi-Rite does? enter, then Acme has to decide whether to fight by slashing its prices or to accommodate. If Acme decides to? fight, then Acme and? Bi-Rite each earn ?$negative 80 ?; if Acme? accommodates, then each earns ?$80.
Part 2 This game is illustrated by the decision tree on the right. Part 3 Using backward? induction, the Nash equilibrium is for? Bi-Rit.
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