Week 6-Discussion

In the text, we consider a sequential-move game in which an entrant was considering entering and industry in competition with an industry in competition with an incumbent firm (See Figure 15-1).  Consider now that the entrant, if fought, has the possibility of withdrawing from the industry (at a loss of 1 for the entrant and a gain of 8 for the incumbent), or staying at a loss of 5 for each player).  What is the equilibrium of this game?  Discuss if the entrant is better off with or without the ability to withdraw.  I have added a diagram of the game.