Consider the following innovation game: Firm A must decide whether or not to introduce a new product. Firm B must decide whether or not to clone firm A's product. If firm A introduces and B clones, then firm A earns $2 and B earns $15. If A introduces and B does not clone, then A earns $8 and B earns $1. If firm A does not introduce, both firms earn profits of 0. Which of the following is true?
A) The subgame perfect Nash equilibrium profits are ($2, 15).
B) The subgame perfect Nash equilibrium profits are ($8, 1).
C) It is not in A's interest to introduce.
D) None of the answers is correct.

Question

Quizplus · Accepted Answer

The subgame perfect Nash equilibrium is for A to introduce and B to clone, resulting in profits of ($2, 15).

Consider the Following Innovation Game: Firm a Must Decide Whether