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.
-In the game in Scenario 13.17, Incumbent Monopoly has:
A) an incentive to threaten accommodation, which would be credible.
B) an incentive to threaten war, which would be credible.
C) an incentive to threaten accommodation, which wouldn't be credible.
D) an incentive to threaten war, which wouldn't be credible.
E) no incentive to make a threat.

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. 
-In the game in Scenario 13.17, Incumbent Monopoly has:
A) an incentive to threaten accommodation, which would be credible. 
B) an incentive to threaten war, which would be credible. 
C) an incentive to threaten accommodation, which wouldn't be credible. 
D) an incentive to threaten war, which wouldn't be credible. 
E) no incentive to make a threat.

Quizplus · Accepted Answer

The incumbent monopoly has an incentive to threaten war to deter entry, but such a threat would not be credible because engaging in a price war would be costly for the monopoly.

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