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1. Currently, neither Fedex nor UPS ship to Cuba, due to US sanctions. However, since DHL is not a US-based company, they already operate there. Suppose the political situation is resolved and sanctions are lifted. Fedex and UPS have 3 choices. They each need to determine whether to enter the Cuban market in a big way, with a large investment, marketing and buildup of infrastructure o enter the Cuban market in a small or limited mannet, shipping there but building relatively few offices and not spending much on marketing o not enter the Cuban market DHL as the incumbent will decide whether to engage in a price war or not. Time for some made up numbers. The table below shows DHL's profits in Cuba in millions of dollars, under different scenarios. No Price War 10 3 Price War 10 1 2 4 No competition (monopoly 2 big competitors 1 bis, 1 small competitor 2 small competitors 1 bit competitor 1 small competitor 4 7 8 6 9 B Fedex and UPS each face the same anticipated profits in Cuba, under different scenarios. Unlike DHL. they have to incur additional costs to enter No Price War Price War 0 o 5 2 Don't enter Enter bis, other enters small Enter small other enters big Both enter big Both enter small 1 - 1 25 3 2 - 1 6 3 Enter big, other doesn't enter Enter small other doesn't enter 3 1 Assume that each knows the decision made by the others before it decides. Assume that Fedex moves first, then UPS, then DHL makes its decision after seeing what the others have done. A Draw a game tree depicting the game. (5 points) B List all the strategies available to each: Fedex, UPS, and DHL. (3 points) C Solve the game for the rollback equilibrium Explain your reasoning. (5 points) Now suppose that DHL hears that sanctions have been lifted and decides to issue a press release pre-announcing its strategy before Fedex or UPS make their decisions. Its choices are issue a press release saying "We welcome competition and look forward to offering the lowest prices and best value" (price war) or say "We have a loyal base of customers in Cuba, and we expect them to remain with us" (no price war). Yes, you often have to decode corporate press releases this way..] D. Draw a new game tree with the same payoffs, but with DHL as the first mover, Fedex as the second mover, and UPS as the third mover. (5 points) E Solve the game for the rollback equilibrium. Explain your reasoning. Is the equilibrium different? Why or why not? (5 points) Now suppose that each has to make its decision without observing what the others have done due to the time pressure and the need to get ahead of the competition F. Draw the payoff matrices depicting the strategies and payoffs. You know how to do this for three players. (5 points) G. Do any of the players have any dominant strategies? Explain who, and which ones, if any. (3 points) H Solve for Nash equilibrium, Is it different from either rolback equilibrium? Why? Explain your reasoning (5 points) 1. Currently, neither Fedex nor UPS ship to Cuba, due to US sanctions. However, since DHL is not a US-based company, they already operate there. Suppose the political situation is resolved and sanctions are lifted. Fedex and UPS have 3 choices. They each need to determine whether to enter the Cuban market in a big way, with a large investment, marketing and buildup of infrastructure o enter the Cuban market in a small or limited mannet, shipping there but building relatively few offices and not spending much on marketing o not enter the Cuban market DHL as the incumbent will decide whether to engage in a price war or not. Time for some made up numbers. The table below shows DHL's profits in Cuba in millions of dollars, under different scenarios. No Price War 10 3 Price War 10 1 2 4 No competition (monopoly 2 big competitors 1 bis, 1 small competitor 2 small competitors 1 bit competitor 1 small competitor 4 7 8 6 9 B Fedex and UPS each face the same anticipated profits in Cuba, under different scenarios. Unlike DHL. they have to incur additional costs to enter No Price War Price War 0 o 5 2 Don't enter Enter bis, other enters small Enter small other enters big Both enter big Both enter small 1 - 1 25 3 2 - 1 6 3 Enter big, other doesn't enter Enter small other doesn't enter 3 1 Assume that each knows the decision made by the others before it decides. Assume that Fedex moves first, then UPS, then DHL makes its decision after seeing what the others have done. A Draw a game tree depicting the game. (5 points) B List all the strategies available to each: Fedex, UPS, and DHL. (3 points) C Solve the game for the rollback equilibrium Explain your reasoning. (5 points) Now suppose that DHL hears that sanctions have been lifted and decides to issue a press release pre-announcing its strategy before Fedex or UPS make their decisions. Its choices are issue a press release saying "We welcome competition and look forward to offering the lowest prices and best value" (price war) or say "We have a loyal base of customers in Cuba, and we expect them to remain with us" (no price war). Yes, you often have to decode corporate press releases this way..] D. Draw a new game tree with the same payoffs, but with DHL as the first mover, Fedex as the second mover, and UPS as the third mover. (5 points) E Solve the game for the rollback equilibrium. Explain your reasoning. Is the equilibrium different? Why or why not? (5 points) Now suppose that each has to make its decision without observing what the others have done due to the time pressure and the need to get ahead of the competition F. Draw the payoff matrices depicting the strategies and payoffs. You know how to do this for three players. (5 points) G. Do any of the players have any dominant strategies? Explain who, and which ones, if any. (3 points) H Solve for Nash equilibrium, Is it different from either rolback equilibrium? Why? Explain your reasoning (5 points)

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