Dell and Gateway are close competitors in the personal computer market. Suppose that each year Dell and Gateway have to decide whether to spend money on costly research and development (R&D). If both spend money on R&D, each firm will earn $30 million. If neither spends money on R&D, each firm will earn $40 million. If one firm spends money on R&D and the other does not, the firm that engaged in R&D would earn $45 million and the firm that did not would earn $25 million.
A) Use a payoff matrix to depict this problem.
B) What is the noncooperative solution to this game?

Question

Quizplus · Accepted Answer

The Answer of Dell and Gateway are close competitors in the personal computer market. Suppose that each year Dell and Gateway have to decide whether to spend money on costly research and development (R&D). If both spend money on R&D, each firm will earn $30 million. If neither spends money on R&D, each firm will earn $40 million. If one firm spends money on R&D and the other does not, the firm that engaged in R&D would earn $45 million and the firm that did not would earn $25 million.

Dell and Gateway Are Close Competitors in the Personal Computer