15.6 Entry Game with Withdrawal In the text, we considered a sequential-move game which an entrant was considering entering an industry in competition with an incumbent firm (Figure 15.1). Consider now that the entrant, if fought, has the possibility of withdrawing from the industry (at a loss of 1 for the entrant and a gain of 8 for the incumbent), or staying (at a loss of 5 for each player). What is the equilibrium of this game? Discuss if the entrant is better off with or without the ability to withdraw. Answer: In the sequential-move game illustrated in Figure 15.1, an entrant is deciding whether to enter an industry in competition with an incumbent firm. The entrant would not enter in this case. If he were to enter his only options (if fought) would be a loss of 1 or a loss of 5. ...