Consider the Following Innovation Game: Firm a Must Decide Whether

question 132

Multiple Choice

Consider the following innovation game: Firm A must decide whether or not to introduce a new product. Firm B must decide whether or not to clone firm A's product. If firm A introduces and B clones, then firm A earns $1 and B earns $10. If A introduces and B does not clone, then A earns $10 and B earns $2. If firm A does not introduce, both firms earn profits of 0. Which of the following is true?

• A) The subgame perfect Nash equilibrium profits are ($10, $2).
• B) It is not in A's interest to introduce.
• C) Firm A does not care if B clones.
• D) None of the answers is correct.

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Definitions:

Pareto Efficiency

A situation where resources are distributed in such a way that improving the condition of any one individual or meeting a preference more fully would result in detriment to at least one other individual or preference.

Socially Efficient

A situation where resources are allocated in the most effective manner, maximizing overall social welfare.

Overestimates

Assessments or calculations that exceed the actual value or amount of something.

Flu Vaccine

A medical injection or nasal spray designed to protect against the influenza virus.