Incumbent in market and currently enjoys monopoly

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Reference no: EM131098395

Firm A is the incumbent in a market and currently enjoys a monopoly. Firm B is a potential entrant. The demand in this market is p = 6 - (qA + qB), where p is the industry price of output. Both firms produce output costlessly. At the start of the game, A will decide how much to spend on advertising. B, after learning how much A has spent, can then either match A’s advertising expenditure or spend nothing on advertising. If B spends nothing, then B earns 0 and A remains the monopolist. If B matches A’s advertising, then they play a Cournot game where they choose output simultaneously. Find the subgame perfect Nash equilibrium of this game. Assume that if Firm B is indifferent between entering and not entering this market it will choose not to enter.

Reference no: EM131098395

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