Hey guys, I have a puzzle for you! This is not exactly related to the topics of the book but can be interesting anyway.
Consider a model of circular city by Salop. There are two firms: one is already in the market (incumbent) and another one enters the market (entrant). First, incumbent decides whether to open one shop or two shops (shops can be opened at zero cost), then entrant enters and opens his shop. The shops are located as in the picture, in both cases. Then firms simultaneously choose prices (if incumbent chooses to open two shops, then the prices should be the same in two shops). Now a surprising fact (which is almost surely correct :)): it is more profitable for the incumbent to open one shop, not two! Does anyone have intuition for this result??? (do not make any calculations)