Two firms dominate the market for surgical sutures and compete aggressively with respect to research and development. The following payoff table depicts the profit implications of their different R&D strategies.
a. Suppose that no communication is possible between the firms; each must choose its R&D strategy independently of the other. What actions will the firms take, and what is the outcome?
b. If the firms can communicate before setting their R&D strategies, what outcome will occur? Explain.
Low Firm A's R&D Medium
Spending
Firm B's R&D Spending Low Medium High
|
8, 11
|
6, 12
|
5, 14
|
|
12, 9
|
8, 10
|
6, 8
|
|
11, 6
|
10, 8
|
4, 6
|
|
|
High