ABC is considering entering a market dominated by DEF. These companies’ profit depends on whether ABC enters and whether DEF sets a low price or a high price: *high price low price*
Enter

Do not enter

Fully explain your answers:
a. Does either company have a dominant strategy? ​​​
b. Does your answer to part (a) help you figure out what the other player should do? What is the Nash equilibrium? Is there only one? ​​​​
c. BB threatens ABC by saying, “If you enter, we will set a low price, so you had better stay out.” Do you think ABC should believe the threat? Why or why not? ​
d. If both ABC and DEF could collude and agree on how to split the total profits, what outcome would they pick? ​​​​​​