There are two niches in the market for electronic sensors, one is SIZE (where smallersensors are preferred) and the other is PERFORMANCE (where high performancesensors are preferred). Two firms, A and B, must simultaneously choose which niche totarget their product to. The payoff matrix is shown below, where profits are listed inmillions of dollars.
Company B
PERFORMANCE SIZE
Company A
PERFORMANCE A makes $3
B makes $2
A makes $10
B makes $3
SIZE A makes $4
B makes $4
A makes $11
B makes $2
a. Find all of the Nash equilibria, if any. Be sure to somehow demonstrate to mehow you arrived at your answer (underline best responses in the table, explain thebest responses verbally, etc.).
b. Now suppose Firm A has the opportunity to move first, choosing its niche beforeFirm B. Use a tree diagram to show which niche company A will choose.
c. How much would Firm A be willing to pay to B so that A could move first. Thealternative is to keep playing the current game.