Consider the following game. Firm E (entrant) is considering entering a market that currently has a single incumbent (firm I). If it does so (by playing "in"), the incumbent can respond in one of two...

A4

Extracted text: Consider the following game. Firm E (entrant) is considering entering a market that currently has a single incumbent (firm I). If it does so (by playing "in"), the incumbent can respond in one of two ways: it can either accommodate the entrant, giving up some of its sales but causing no change in the market price, or it can fight the entrant, engaging in a costly market war that dramatically lowers the market price. The extensive form of this game is depicted below Firm E Out In Firm I (U =0) U, =2 Fight/ Accommodate (Ug=-3) U, =-1 U, =1 a) Represent the game in Normal Form and find all the pure strategy Nash Equilibria. b) Using the extensive form, find the Subgame Perfect Nash Equilibria. Compare your result to the one found in part a) and discuss the results.