Two Firms in a Local Market Compete in the Manufacture

question 3

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 payoffs of each firm's strategy are a function of the strategy of their competitor as well. The payoff matrix is presented below. Firm #2 chooses to innovate with probability 20/21. If Firm #1 does the same, what is the expected payoff? 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:

pKa

A quantitative measure of the strength of an acid in solution, representing the acid dissociation constant on a logarithmic scale.

Diethyl Malonate

An ester of malonic acid used as a reagent in organic synthesis, particularly in the synthesis of various organic compounds including barbiturates and vitamins.

Major Organic Product

The primary product of an organic reaction, generally formed in the greatest amount.

Robinson Annulation

A chemical reaction used to create ring structures in organic chemistry, involving the formation of a six-membered ring by the reaction of a ketone with a methyl vinyl ketone.