In the research and development game of chicken,
A)the best strategy for each player is to undertake research and development.
B)the best strategy is for neither player to undertake research and development.
C)the equilibrium is for only one firm to undertake research and development.
D)the equilibrium is unique.
E)no solution can be found.

Question

Quizplus · Accepted Answer

In the game of chicken, both players have an incentive to undertake research and development in order to gain an advantage over their competitor. However, if both players choose this strategy, they both incur costs and the overall profits of the industry may not increase enough to offset those costs. Therefore, the equilibrium outcome is for one firm to undertake research and development while the other firm does not. This allows the innovating firm to capture some of the gains from innovation while the non-innovating firm avoids the costs of research and development.

In the Research and Development Game of Chicken