Suppose Toyota and Honda must decide whether to make a new breed of side impact airbags standard equipment on all models. Side-impact airbags raise the price of each automobile by $500. If both firms make side-impact airbags standard equipment, each company will earn profits of $1.5 billion. If neither company adopts the sideimpact airbag technology, each company will earn $0.5 billion (due to lost sales to other automakers). If one company adopts the technology as standard equipment and the other does not, the adopting company will eam a.profit of $2billion and the other will lose $1 billion.
If you were a decision maker at Honda, would you make side-impact airbags standard equipment? Explain.