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Question: two firms compete in selling fileencryption software because both firms...

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Two firms compete in selling file-encryption software. Because both firms use the same encryption standard, files encrypted by one firm’s software can be read by the others, which is an advantage for consumers. Firm 1 has a much larger market share because it entered the market earlier and its software has a better user interface. Both firms are now considering an investment in a new encryption standard. The two firms can either invest or not invest in this new standard. Resulting profit is given by the payoff matrix.

Suppose Firm 1 decides first whether to invest and then Firm 2 decides after learning of Firm 1s decision. What is the subgame perfect equilibrium? The subgame perfect equilibrium when Firm 1 moves first is for Firm 2 Dont Invest Invest 0 A. Firm 1 to invest and Firm 2 to invest. O B. Firm 1 to not invest and Firm 2 to invest ° C. Firm 1 to not invest and Firm 2 to not invest. ○ D. Firm 1 to invest and Firm 2 to not invest. 0 E. none of the above. Dont Invest 15,15 10,10 Firm 1 Instead, suppose that Firm 2 decides first whether to invest What is the subgame perfect equilibrium in this instance? The subgame perfect equilibrium when Firm 2 moves first is for 100,0 20,10 Invest 0 A. Firm 2 to invest and Firm 1 to invest. O B. Firm 2 to not invest and Firm 1 to not invest. C. Firm 2 to not invest and Firm 1 to invest. 0 D. Firm 2 to invest and Firm 1 to not invest. O E. none of the above.
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