An incumbent firm Pilly has a product that works well but has the possibility of causing side-effects to users. Both Pilly and an upstart firm Smirck are having the opportunity to develop a new product without the side effects. The following table shows the expected net return (after considering R&D costs, probability of success in product development, and future profits) for each firm under different scenarios. Smirck Invest Smirck Not Invest Pilly: $2.4 m Smirck: -$0.1 m Pilly Invest Pilly: $4.9 m Smirck: $0 Pilly Not Invest Pilly: $3 m Smirck: $0.4 m Pilly: $5 m Smirck: $0 Assume that the two firms simultaneously choose whether to invest or not. What is the Nash Equilibrium of this game (that is, the action choices of the two firms in the Nash Equilibrium)? Would your answer be different if Pilly is the first mover and commits to its choice before Smirck makes its response (that is, a sequential-move game)? Equilibrium in the simultaneous-move game (No need for justification): Equilibrium in the sequential-move game: Justification for your answer in the sequential-move game:

An incumbent firm Pilly has a product that works well but has the possibility of causing side-effects to users. Both Pilly and an upstart firm Smirck are having the opportunity to develop a new product without the side effects. The following table shows the expected net return (after considering R&D costs, probability of success in product development, and future profits) for each firm under different scenarios. Smirck Invest Smirck Not Invest Pilly: $2.4 m Smirck: -$0.1 m Pilly Invest Pilly: $4.9 m Smirck: $0 Pilly Not Invest Pilly: $3 m Smirck: $0.4 m Pilly: $5 m Smirck: $0 Assume that the two firms simultaneously choose whether to invest or not. What is the Nash Equilibrium of this game (that is, the action choices of the two firms in the Nash Equilibrium)? Would your answer be different if Pilly is the first mover and commits to its choice before Smirck makes its response (that is, a sequential-move game)? Equilibrium in the simultaneous-move game (No need for justification): Equilibrium in the sequential-move game: Justification for your answer in the sequential-move game:

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter2: Fundamental Economic Concepts

Section: Chapter Questions

Problem 6E

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