Two firms are trying to decide how much to budget for research and development.Once a new discovery is made,each firm benefits regardless of which firm developed the innovation.In this R&D game of chicken,the Nash equilibrium is that
A)both firms conduct R&D.
B)neither firm conducts R&D.
C)only one firm conducts R&D but which firm conducts the R&D cannot be determined.
D)the larger firm conducts the R&D.
E)the smaller firm conducts the R&D.

Question

Quizplus · Accepted Answer

In a game of chicken regarding R&D investment, the Nash equilibrium typically involves only one firm conducting R&D because each firm benefits from the other's discovery without bearing the costs. However, without specific payoffs or strategies, it's impossible to determine which firm will take on the R&D effort, making option C correct.

Two Firms Are Trying to Decide How Much to Budget