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. Firm B’s R&D Spending Low Medium High Low 8, 11 6, 12 5, 14 Firm A’s R&D Medium 12, 9 8, 10 6, 8 Spending High 11, 6 10, 8 4, 6

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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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.
Firm B’s R&D Spending
Low Medium High
Low 8, 11 6, 12 5, 14
Firm A’s R&D Medium 12, 9 8, 10 6, 8 Spending
High 11, 6 10, 8 4, 6

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