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FIGURE 12.6 An Entry Game*
Samsung uses backward induction to decide whether to enter the tablet market currently dominated by Apple. If Samsung chooses to enter the market, Apple’s optimum strategy is to not fight a price war, and Samsung earns $0.5 billion in profit, higher than the zero profit it earns when it doesn’t enter the market. Because Samsung knows that Apple’s threat to enter a price war is not credible, Samsung will enter the tablet market.* Payoffs are in billions of dollars of profit.