Consider two firms, X and Y, that produce super computers. Each can produce the next generation super computer for the military (M) or for civilian research (C). However, only one can successfully produce for both markets simultaneously. Also, if one produces M, the other might not be able to successfully produce M, because of the limited market. The following payoff matrix illustrates the problem.
a. Find the Nash equilibrium, and explain why it is a Nash equilibrium.
b. If Firm X were unsure that the management of Firm Y were rational, what would Firm X choose to do if it followed a maximin strategy? What would both firms do if they both followed a maximin strategy?

Question

Consider two firms, X and Y, that produce super computers. Each can produce the next generation super computer for the military (M) or for civilian research (C). However, only one can successfully produce for both markets simultaneously. Also, if one produces M, the other might not be able to successfully produce M, because of the limited market. The following payoff matrix illustrates the problem.  
a. Find the Nash equilibrium, and explain why it is a Nash equilibrium.
b. If Firm X were unsure that the management of Firm Y were rational, what would Firm X choose to do if it followed a maximin strategy? What would both firms do if they both followed a maximin strategy?

Quizplus · Accepted Answer

The Answer of Consider two firms, X and Y, that produce super computers. Each can produce the next generation super computer for the military (M) or for civilian research (C). However, only one can successfully produce for both markets simultaneously. Also, if one produces M, the other might not be able to successfully produce M, because of the limited market. The following payoff matrix illustrates the problem.  
a. Find the Nash equilibrium, and explain why it is a Nash equilibrium.
b. If Firm X were unsure that the management of Firm Y were rational, what would Firm X choose to do if it followed a maximin strategy? What would both firms do if they both followed a maximin strategy?

Consider Two Firms, X and Y, That Produce Super Computers