Pure Strategy Nash Equilibrium Sample Homework
QUESTION: Suppose we have a simultaneous moves entry game where the incumbent and the entry have to both decide on the strategies at the same time. The risk neutral entrant has to decide whether to enter or not and the incumbent has to decide whether to fight (aggressive pricing) or accommodate (no change in pricing). Both players know the all the payoffs in the game. The problem for the entrant is that there are two types of incumbents she could potentially face normal and tough. As we will see below each of these types face difference pay offs.