Suppose two companies,Rosencrantz and Guildenstern,are both selling the same software technology,Alpha.They have an equal share in the market,which is worth a total of $100,000.However,both companies are deciding whether to develop the next generation software,Beta,which has huge market potential.Beta's probability of success is 0.60.If only one company enters the Beta market,the entire market is worth $250,000.On the other hand,if both companies introduce Beta,the successful market value would be only $150,000 since competition would reduce the price.If both succeed,both would hold an equal share in the Beta market as well.
If Beta fails,the total market would only be $20,000 regardless of how many companies enter the market.
In addition,the company not entering the Beta market could capture Alpha's market all to themselves (launching Beta means a loss of all Alpha sales)
Should either company continue to develop Beta? How could one company gain an advantage?
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