Two Firms in a Local Market Compete in the Manufacture

question 86

Essay

Two firms in a local market compete in the manufacture of cyberwidgets. Each firm must decide if they will engage in product research to innovate their version of the cyberwidget. The pay-offs of each firm's strategy is a function of the strategy of their competitor as well. The pay-off matrix is presented below.
Firm #2 chooses to innovate with probability 20/21. If Firm #1 does the same, what is the expected pay-off? Is this a Mixed Strategy Nash Equilibrium? Suppose, instead, that firm #2 innovates with probability 2/3. Should player #1 always innovate?

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Definitions:

MRI

Magnetic Resonance Imaging, a technique used in radiology to form pictures of the anatomy and the physiological processes of the body.

PsychENCODE

A research project aimed at understanding the molecular basis of psychiatric disorders by mapping the human brain's complex genetic expressions.

Diffusion Spectrum Imaging

An MRI-based neuroimaging technique that maps the diffusion of water molecules in the brain, indicating the location, orientation, and integrity of brain's white matter tracts.

MEG

Magnetoencephalography, a neuroimaging technique for mapping brain activity by recording magnetic fields produced by neural currents.