What could firm a do to make its threat credible

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Reference no: EM13154685

Given the below payoff matrix, (a) indicate the best strategy for each firm. The strategies for firm A are low price and high price and the strategies for firm B are enter and don't enter. What is the best (optimal) strategy for each firm?

(b) Why is the entry-deterrent threat by firm A to lower the price not credible to firm B?

(c) What could firm A do to make its threat credible without building excess capacity? Will firm A use the low price as a threat if firm B enters?

Firm A: Low Price = (3,-1) and (3,1)

High Price = (4,5) and (6,3)

Firm B :Enter = (3,-1) and (4,5)

Don't Enter = (3,1) and (6,3)

Reference no: EM13154685

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