a. Suppose that no communication is possible between the firms; each must choose its R&D strategy independently of the other. What actions will the firms take, and what is the outcome? b. If the firms can communicate before setting their R&D strategies, what outcome will occur? Explain. Firm B’s R&D Spending Low Medium High Low 8, 11 6, 12 5, 14 Firm A’s R&D Medium 12, 9 8, 10 6, 8 Spending High 11, 6 10, 8 4, 6
a. Suppose that no communication is possible between the firms; each must choose its R&D strategy independently of the other. What actions will the firms take, and what is the outcome? b. If the firms can communicate before setting their R&D strategies, what outcome will occur? Explain. Firm B’s R&D Spending Low Medium High Low 8, 11 6, 12 5, 14 Firm A’s R&D Medium 12, 9 8, 10 6, 8 Spending High 11, 6 10, 8 4, 6
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter24: Price-searcher Markets With High Entry Barriers
Section: Chapter Questions
Problem 9CQ
Related questions
Question
Two firms dominate the market for surgical sutures and compete
aggressively with respect to research and development. The following
payoff table depicts the profit implications of their different R&D
strategies.
a. Suppose that no communication is possible between the firms; each
must choose its R&D strategy independently of the other. What
actions will the firms take, and what is the outcome?
b. If the firms can communicate before setting their R&D strategies,
what outcome will occur? Explain.
Firm B’s R&D Spending
Low Medium High
Low 8, 11 6, 12 5, 14
Firm A’s R&D Medium 12, 9 8, 10 6, 8 Spending
High 11, 6 10, 8 4, 6
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