Question: two firms are considering simultaneously developing a new product for...
Two firms are considering simultaneously developing a new product for a market. The costs of developing the product are $10m but there will only be revenue in the market of $40m if only one of the firms develops the product. If both firms develop the product then earnings/revenues will be competed away.
a) Capture this entry game in a payoff matrix. (5 Marks)
b) What is the Nash equilibrium and why? Please provide explanation. (2 Marks)
c) Does either firm have a dominant strategy? Please provide explanation. (4 Marks)