Two Firms in a Local Market Compete in the Manufacture

question 12

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:

Parasympathetic Nervous System

A branch of the autonomic nervous system responsible for conserving energy and promoting 'rest and digest' functions.

Central Nervous System

The principal part of the nervous system comprising the brain and spinal cord, responsible for processing information and controlling responses.

Sympathetic

Pertaining to the part of the autonomic nervous system that is responsible for preparing the body for action, especially in situations threatening survival.

Parasympathetic

Part of the autonomic nervous system responsible for conserving energy and calming the body after periods of stress or danger.