14.3 Sequential Dynamic Games
-The above figure shows the payoff to two gasoline stations,A and B,deciding to operate in an isolated town.Suppose a $60 fee is required to enter the market.If firm A chooses its strategy first,then
A) firm A will not enter.
B) neither firm will enter.
C) both firms will enter.
D) firm A will enter and firm B will not.

Question

14.3 Sequential Dynamic Games 
-The above figure shows the payoff to two gasoline stations,A and B,deciding to operate in an isolated town.Suppose a $60 fee is required to enter the market.If firm A chooses its strategy first,then
A) firm A will not enter. 
B) neither firm will enter. 
C) both firms will enter. 
D) firm A will enter and firm B will not.

Quizplus · Accepted Answer

Given that firm A chooses its strategy first and there's a $60 fee to enter the market, firm A will enter because it can anticipate the actions of firm B. Knowing that entering the market would result in a loss for firm B (due to the entry fee and the competitive dynamics), firm B is likely to stay out, allowing firm A to monopolize the market and avoid the loss, making the entry profitable for firm A despite the fee.