Refer to the
normal-form game of price competition shown below.
Firm A must decide whether or not to introduce a new product. If
firm A introduces a new product, firm B must decide whether or not
to clone the product. The payoff structure of the game is depicted
in Figure 10-12. The subgame perfect Nash equilibrium to this game
is:
Multiple Choice
-
A. Firm A plays "Introduce"; firm B plays "Clone" if firm A plays "Introduce."
-
B. Firm A plays "Do Not Introduce"; firm B plays "Clone" if firm A plays "Introduce."
-
C. Firm A plays "Introduce"; firm B plays "Do Not Clone" if firm A plays "Introduce."
-
D. Firm A plays "Do Not Introduce"; firm B plays "Do Not Clone" if firm A plays "Introduce."
Homework Answers
Sequential game are solved by backward induction
Thus we know player B will play Clone on its turn
knowing this player 1 will play Donot introduce
Thus ans is B
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