Find the subgame perfect equilibrium

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Reference no: EM13739502

Consider the following game. A firm currently on the market (incumbent firm) faces the potential entry of one firm (the entrant). If the incumbent remains alone on the market, his profit is 1000. The incumbent can try to convince the entrant to do not enter the market by using a very aggressive campaign of publicity at cost of 200. After knowing the incumbent’s decision about the publicity campaign, the entrant must decide to enter or not the market. Once the decision to enter or not, the entrant must decide to use an aggressive publicity campaign at cost of 200. If both firms use an aggressive campaign or if both firms do not, the split the market equally (the size of the market is 1000). If one firm uses aggressive campaign and the other does not, the first gets 3?4 of the market and the other gets 1?4. a) Represent this game in the extensive form. b) Find the subgame perfect equilibrium.

Reference no: EM13739502

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