Question: Durim and Palester have merged to form DuPal Fitness. They now have a monopoly over the fitness industry in Tirana and charge a rather high price. A fitness expert, Agon, is interested in opening a competing establishment. DuPal can compete by adjusting prices for memberships.
Agon's choices: Enter or stay out.
Dupal's choices: High price or low price.
Monthly profits (thousands):
A. Suppose Agon moves first and DuPal responds. Draw the game tree and find Nash Equilibrium using the payouts described in the profit table above.
B. Now assume DuPal knows that Agon might enter. Suppose DuPal moves first and Agon responds. Draw the game tree and find Nash Equilibrium using the payouts described in the profit table above.
C. Compare A and B above.