Question

2. You are considering entry into a market in which there is currently only one producer (incumbent). If you enter and the incumbent prices low (fights) then you will both lose 10 million. If you enter and the incumbent accommodates than you both will earn 3 Million. If you stay out of the market you will earn nothing and the incumbent will earn 7 million. What is the best strategy for you as the entrant in the market.

Answer 1

Answer: a. You should enter if you expect the incumbent to accommodate

Step-by-step explanation:

If you expect the incumbent to be accommodating then it is best to enter the market because you will earn 3 million along with the incumbent.

This will be a gain for the both of you that has a chance of success because fighting you will be to the detriment of the incumbent as they will then stand to lose 10 million like you will as well.

The option of the incumbent being accommodating is the best option for the both of you.