Irrawaddy net Case Study And Infrastructure Capacity Expansion - Economics Assignment Help

Assignment Task -

Part I: 

Irrawaddynet wants to prevent Peoplenet from entering the market for high-priced, Fiber broadband service. Fiber broadband service provides better quality internet connection and uses less energy than any other internet services. Even though Fiber broadband service is more costly to manufacture than any other types, Irrawaddynet is nonetheless earning economic profit as the largest firm in the industry making Fiber broadband service for upscale consumers. The annual profits (in millions of dollars) for Irrawaddynet and Peoplenet are shown in the following payoff table for the pricing and entry decisions facing the two firms. Price is the monthly service fee for 100 Mbps.

1. If Peoplenet enters the market, can Irrawaddynet deter Peoplenet from entering the market for Fiber broadband service by threatening to lower the price, to $85? Why or why not?

2. With the new payoff conditions, can Irrawaddynet deter Peoplenet from entering the profitable market for Fiber broadband service? Can you identify the truth about the investment in infrastructure capacity expansion in order for the strategic move to be successful? Explain.

3. Construct the sequential game tree when Irrawaddynet takes the first mover position by deciding whether to invest in infrastructure capacity expansion. Find the Nash equilibrium path by using the roll-back technique. How much profit does each firm earn? (Hint: the game tree will have three sequential decisions: Irrawaddynet makes the decision first whether to invest in infrastructure capacity expansion, Peoplenet makes the entry decision, and Irrawaddynet decides whether to lower the price.)

4. Many economists argue that “More research, development, and innovation can be seen in the oligopolistic market structure than in any other”. Do you agree with this argument? Explain.

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