Consider the following innovation game: Firm A must decide whether or not to introduce a new product.Firm B must decide whether or not to clone firm A's product.If firm A introduces and B clones,then firm A earns $1 and B earns $10.If A introduces and B does not clone,then A earns $10 and B earns $2.If firm A does not introduce,both firms earn profits of 0.Which of the following is true?
A) The subgame perfect Nash equilibrium profits are ($10, $2).
B) It is not in A's interest to introduce.
C) Firm A does not care if B clones.
D) None of the preceding answers is correct.

Question

Quizplus · Accepted Answer

There is no clear dominant strategy for either firm in this game. Firm A must consider the possibility that B will clone their product if they introduce it, which affects their payoff. Firm B must consider the possibility that A will not introduce the product, leading to zero profits if they decide to clone it. Due to this lack of dominant strategies, it is difficult to determine the subgame perfect Nash equilibrium, and none of the given options are correct. The best choice is not clear without further information.

Consider the Following Innovation Game: Firm a Must Decide Whether