Consider a firm with two agents – 1 and 2. Both agents have to choose between two options: Client Focus or Cost Focus. If both choose Client the payoffs to 1 are 20 and 10 to agent 2. If both agents choose to play Cost the payoffs are 15 to agent 1 and 25 to agent 2, respectively. Finally, if any other combination of actions is chosen the payoffs to each agent are 0.
a. Assume that the agent choose their actions simultaneously. Draw the normal form of the game and derive all of the Nash equilibria.
b. Now assume that the game is played sequentially: Agent 1 makes her choice of action first, this is observed by Agent 2, who then makes his choice. Draw the extensive form of the game and find the subgame perfect equilibria. Briefly interpret this game in the context of: (i) leadership and corporate culture; and (ii) the Basic Value Maximisation Principle.