Your firm must decide whether or not to introduce a new product. If you introduce the new product, your rival will have to decide whether or not to clone the new product. If you don’t introduce the new product, you and your rival will earn $1 million each. If you introduce the new product and your rival clones it, you will lose $5million and your rival will gain $20 million. If you introduce the new product and your rival does not clone, you will make $100 million and you rival will make $0
Set up the extensive form of this game
Should you introduce the new product?
How would your answer change if your rival has “promised” not to clone your product?
What would you do if patent law prevented your rival from cloning your product?