Consider the following sequential game. Firm A must decide whether or not to int
ID: 1222313 • Letter: C
Question
Consider the following sequential game. Firm A must decide whether or not to introduce a new product. Then, 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.
Select one:
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 statements associated with this question are correct.
Explanation / Answer
Ans: c. Firm A does not care if B clones.
Explanation:
Because if firm A does not introduce, it will earn 0 profit. And, again Firm A also does not know whether Firm B will clone or not. So, it is better to introduce new product and earn some profit.