Figure 14-4 Rainbow Writer (RW)is a Small Online Company Selling a Highly

question 106

Multiple Choice

Figure 14-4

Rainbow Writer (RW) is a small online company selling a highly rated software package for engraving words onto objects produced by 3D printers. The firm currently earns a profit of $2 million per year selling its package exclusively on its Website. Odeon, the producer of the most popular 3D printers has expressed interest in bundling Rainbow Writer's product with its printers. Odeon expects that bundling would further boost its sales and allow it to sell its printers at a higher price, thus raising its profits beyond its current profit of $12 million. Figure 14.4 shows the decision tree for the Rainbow Writer-Odeon bargaining game.
-Refer to Figure 14-4.What is the equilibrium outcome in this game and is this a subgame-perfect equilibrium?

• A)In the equilibrium, neither offer is accepted as Rainbow Writer holds out for a better deal. The two rejection outcomes are subgame-perfect equilibria.
• 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)Either offer of $30 or $40 per copy of the software package is accepted and these two equilibria are subgame-perfect equilibria.
• D)Either offer of $30 or $40 per copy of the software package is accepted but these are not are subgame-perfect equilibria.

---

Definitions:

Single Seller

A market structure where there is only one provider of a product or service.

Collusively Agreed

An arrangement or agreement among competing entities to limit competition, usually regarding pricing or market sharing.

Total Revenue

The complete revenue a company accrues from its sales activities or service offerings throughout a designated period.

Total Cost

The sum of fixed and variable costs incurred in the production of goods or services.