Figure 11.2 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 11.2 shows the decision tree for this game.
-Refer to Figure 11.2.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 11.2  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 11.2 shows the decision tree for this game.
-Refer to Figure 11.2.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

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

Figure 112 the Government of a Developing Country Plans to to Award