# Problem 5. (20 points) There are two competing firms. Each firm decides when to exit the...

###### Question:

Problem 5. (20 points) There are two competing firms. Each firm decides when to exit the market: (i) immediately, (ii) after 6 months, or (iii) after 1 year. If a firm decides to exit the market, it does not get any payoff from that point on (that is, its utility stays the same). After every 6 months firms gain or lose utilities as follow: if both firms are still in the market, they both lose -1 and if only one firm is in the market, that firm gains +2. a. Write down the game in matrix form. b. Find the pure-strategy Nash equilibria. c. Find the unique mixed strategy Nash equilibrium. For simplicity, assume that exiting after 6 months will not be a part of a Nash equilibrium.

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