Homework Answers
C. The Nash equilibria are for firm 1 to introduce product A and firm 2 to introduce product C and firm 1 to introduce product C and firm 2 to introduce product A.
D. both firms to introduce product A.
Product C
Explanation:
Given that firm 1 introduce A, Firm 2's best response is
C(90).
Given that firm 1 introduce B, Firm 2's best response is
C(85).
Given that firm 1 introduce C, Firm 2's best response is
A(30).
Given that firm 2 introduce A, Firm 2's best response is
C(90).
Given that firm 2 introduce B, Firm 2's best response is
C(85).
Given that firm 2 introduce C, Firm 2's best response is
A(30).
So, there are 2 Nash equilibria as best response of both firms
occur simultaneously at these two sets. They are (A, C), and (C,
A).
Firm 1's minimum payoff from A is -45, from B is -60 and from C
is -90. So, firm 1's maximum payoff is -45 from A. Thus, it is the
maximin outcome of firm 1.
Firm 2's minimum payoff from A is -45, from B is -60 and from C is
-90. So, firm 1's maximum payoff is -45 from A. Thus, it is the
maximin outcome of firm 2.
When firm 1 choose its maximin strategy product A, firm 2's best response is C. So, it will introduce product C.
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