Suppose Firm 2 proposed to Firm 1 that if Firm 1 will agree to Stay Out so will Firm 2. If so, they would both earn higher payoffs. Insteand of 11, Firm 1 would earn 13 and instead of 7 Firm 2 would earn 8.

   If they could both agree to this outcome both would be better off. Can the two firms come to such an agreement? Because the game is sequential, the answer depends on the credibility of Firm 2.

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