Figure 12.3 Rainbow Writer (RW)is a Small Online Company Selling a Highly

question 28

Multiple Choice

Figure 12.3

Rainbow Writer (RW) is a small online company selling a highly rated software package for printing color labels directly onto CDs. The firm currently earns a profit of $2 million per year selling its package exclusively on its Web site. Odeon, the producer of the most popular software package for editing and burning CDs and DVDs has expressed interest in bundling Rainbow Writer's product into its own package. Odeon expects that bundling would further boost its sales and allow it to sell the new bundled product at a higher price, thus raising its profits beyond its current profit of $12 million. Figure 14.3 shows the decision tree for the Rainbow Writer-Odeon bargaining game.
-Refer to Figure 12.3.What is the equilibrium outcome in this game and is this a subgame-perfect equilibrium?

• A)Odeon's offer of $40 per copy of the software package is accepted and this is a subgame-perfect equilibrium.
• B)In the equilibrium, Odeon offers $40 per copy of the software package and is accepted but this is not a subgame-perfect equilibrium.
• C)In the equilibrium, Odeon offers $30 per copy of the software package and is rejected, and this is a subgame-perfect equilibrium.
• D)There is no equilibrium in this game.

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