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Question: two firms are considering simultaneously developing a new product for...

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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)

 

 

 

 

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