14.3 Sequential Dynamic Games
-The above figure shows the payoff to two gasoline stations,A and B,deciding to operate in an isolated town.Suppose a $30 fee is required to enter the market.If firm A chooses its strategy first,then
A) firm A will not enter.
B) neither firm will enter.
C) both firms will enter.
D) firm A will enter and firm B will not.

Question

14.3 Sequential Dynamic Games 
-The above figure shows the payoff to two gasoline stations,A and B,deciding to operate in an isolated town.Suppose a $30 fee is required to enter the market.If firm A chooses its strategy first,then
A) firm A will not enter. 
B) neither firm will enter. 
C) both firms will enter. 
D) firm A will enter and firm B will not.

Quizplus · Accepted Answer

If firm A chooses to enter, it will have a payoff of $80 if firm B enters and $60 if firm B does not enter. If it chooses not to enter, it gets 0. Thus, firm A will choose to enter.

If firm A enters, firm B will have a payoff of $80 if it enters and $60 if it does not enter. Thus, firm B will choose to enter.

Therefore, both firms will enter and both will have a payoff of $80.