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
Chapter15: Imperfect Competition
Section: Chapter Questions
Problem 15.6P
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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