Problem
Solve and comment on the following statement:
Firms A and B are considering entering the production of solar panels for home use. Company A has a slight initial advantage, due to technological proximity and experience. If the two companies enter the sector, they must share the market, and the expected payoffs would be 10 for A and -20 for B. If only A entered, it would obtain 150. If only B did, it would obtain 120. If neither enters, the payoff would be 0 for both.
a) If decisions are made simultaneously, what is the likely outcome and why?
b) The Government is very interested in the two companies entering the sector and is willing to subsidize the activity with public funds. Design a subsidy policy to achieve this, of course while trying to minimize the budgetary cost.