Return to a risk-neutral Tudor, but with a low per-unit
cost of 6 (instead of 5 or 10 as in Section 6). If Tudor’s cost is low, 6, then
it will earn 90 in a profit-maximizing monopoly. If Fordor enters, Tudor will
earn 59 in the resulting duopoly while Fordor earns 13. If Tudor is actually
high cost (that is, its per-unit cost is 15) and prices as if it were low cost
(that is, with a per-unit cost of 6), then it earns 5 in a monopoly situation.
(a) Draw a game tree for this game equivalent to Figure
8.7 or 8.9 in the text, changing the appropriate payoffs.
(b) Write the normal form of this game, assuming that the
probability that Tudor is low price is 0.4.
(c) What is the equilibrium of the game? Is it
separating, pooling, or semi separating? Explain why.