Problem: Nintendo and Sony Playstation are each planning to introduce one new game into the market. Each is considering three different kinds of games: an urban action game like Grand Theft Auto, an adventure game like Tomb Raiders, or a strategy game like SimCity The table shows each firm's profits (Sony's profit first) in millions of dollars.
Nintendo
Grand Theft Tomb Raiders Sim City
Grand Theft 2, 2 7, 3 8, 4
Sony Tomb Raiders 3, 10 -3, -3 1, 2
Sim City 4, 8 2, 1 -7, -7
1. Assuming the firms act independently, find the dominant strategy for both player (if exist), and the (Nash) equilibrium(a). Briefly, explain your answer. Is this game an example of the prisoner's dilemma?
2. Nintendo knows for a fact that Sony will not decide on its new project for four months. As CEO of Nintendo, what would you do immediately based on the analysis above?
3. If the firms were free to coordinate their decisions, what agreement (and actions) would they take? Explain briefly.