(Entry Deterrence) Joe's Gas, the only gas station at a busy highway exit, earns a monopoly profit of $10,000 per week. Joe is concerned about entry. He can obtain an exclusive right that would prevent others from entering the market at this location, at a cost of $b per week. If Joe does not buy the exclusive right, a potential entrant must decide whether to enter. If entry occurs, Joe's profit will fall to 6000 per week and the entrant will earn 1000 -F, where F is a weekly fixed cost.
Suppose F = 900 and b = 4,261. Calculate the profits earned by the incumbent, Joe, in the sequential Nash equilibrium. Enter your answer with one digit after the decimal.
Pay b
(10,000-b, 0)
No Entry
E
(6,000, 1,000 - F)
Enter
Don't pay b
E
Don't Enter
(10,000, 0)
