1) Complete a game tree to represent this game. 2) Based on your solution in part (a), determine the subgame perfect Nash Equilibrium solution.
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Suppose that BMW and Audi are introducing new cars to the market at the same trade show. If both companies introduce a hybrid car, they will each earn $200 million. If they both introduce an electric car, they will each make $400 million. However, if they introduce different types of cars, the manufacturer that produces the electric car will earn $900 million, while the manufacturer that produces the hybrid car will make $500 million. In addition, BMW has committed to introducing their car first at the tradeshow by agreeing to pay Audi a guaranteed $200 million.
1) Complete a game tree to represent this game.
2) Based on your solution in part (a), determine the subgame perfect Nash Equilibrium solution.
The game tree will depict the different combination of strategies and the payoff associated with them. Here, company-B is the first-mover and company-A is the second mover. Company-A will have a guaranteed income of $200 million.
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