Q4

Sequential Game Tree  

a. Currently, the Comcast building is the tallest building in Philadelphia. Suppose another corporation, company X, is deciding whether or not to build an even larger building than the Comcast building in an effort to dominate the Philadelphia skyline.. If X does not enter, Comcast gets a payoff of 100 and X gets 0. If X does enter, Comcast must decide whether or not to add to their already existing building. Draw a sequential game tree starting at the decision of whether company X should enter the skyline for the following two scenarios. Assume company X, after building its skyline-dominating building is better off in both scenarios when Comcast does not add to its existing building than when it does.

i. The threat of Comcast adding to their existing structure is not credible, meaning the payoff Comcast receives when adding to existing building is less than the payoff it would receive if it did not add to its building.

ii. The threat of Comcast adding to their existing structure is credible, meaning the payoff Comcast receives when adding to its existing building is more than the payoff it would receive if it did not add to its building.

b. Explain how this relates to why companies may want to invest in large amounts of infrastructure when entering a market.