Figure 12.2

The government of a developing country plans to award two firms, Gigacom and Xenophone, the exclusive rights to share the market for high speed internet service. Gigacom and Xenophone can both provide the service either via television cable lines or via direct subscriber line (DSL). Suppose the government is considering a proposal to delay one firm's entry into the market on the grounds that it wants to prevent "harmful" competition. Figure 12.2 shows the decision tree for this game.
-Refer to Figure 12.2.If the government delays Gigacom's entry and Xenophone moves first, is a threat by Gigacom that it will provide DSL service if Gigacom provides cable service a credible threat?

Question

Figure 12.2
  
The government of a developing country plans to award two firms, Gigacom and Xenophone, the exclusive rights to share the market for high speed internet service. Gigacom and Xenophone can both provide the service either via television cable lines or via direct subscriber line (DSL). Suppose the government is considering a proposal to delay one firm's entry into the market on the grounds that it wants to prevent "harmful" competition. Figure 12.2 shows the decision tree for this game.
-Refer to Figure 12.2.If the government delays Gigacom's entry and Xenophone moves first, is a threat by Gigacom that it will provide DSL service if Gigacom provides cable service a credible threat?

Quizplus · Accepted Answer

If Gigacom carries out its threat, it will lose $4.5 million in profits, making the threat not credible.

Figure 12.2 The Government of a Developing Country Plans to Award Two