Scenario 13.17
Consider the entry-deterrence game below. The potential entrant would have to spend some amount in sunk costs to enter the market.
-If the game in Scenario 13.17 were to be infinitely repeated, waging a price war might be a rational strategy:
A) because there would be no short-term losses.
B) because the short-term losses might be outweighed by long-term gains from preventing entry.
C) if the potential entrant were irrational.
D) if the monopolist had excess capacity.
E) if there were no sunk costs to the potential entrant.

Question

Scenario 13.17
Consider the entry-deterrence game below. The potential entrant would have to spend some amount in sunk costs to enter the market. 
-If the game in Scenario 13.17 were to be infinitely repeated, waging a price war might be a rational strategy:
A) because there would be no short-term losses. 
B) because the short-term losses might be outweighed by long-term gains from preventing entry. 
C) if the potential entrant were irrational. 
D) if the monopolist had excess capacity. 
E) if there were no sunk costs to the potential entrant.

Quizplus · Accepted Answer

In an infinitely repeated game, there is the possibility of long-term gains from preventing entry, which might outweigh the short-term losses from waging a price war. This is because the monopolist can continue earning profits in the market in the future periods without having to face competition from the entrant. However, if there were no sunk costs to the potential entrant, the monopolist would not have the incentive to wage a price war to prevent entry.

Scenario 13.17 Consider the Entry-Deterrence Game Below. the Potential Entrant Would Have