Ronnie's Wraps is the only supplier of sandwich food and makes a healthy profit. It currently charges a high price and makes a profit of six units. However, Flash Salads is considering entering the same market. The payoff matrix below defines the profit outcomes for different possibilities. The first entry in each cell is the payoff/profit to Flash Salads and the second to Ronnie's Wraps.
(a) If Ronnie's Wraps threatens to lower its price in response to the entry of a new competitor, should Flash Salads stay away or enter?
(b) Explain the importance of threat credibility here.