Managerial Economics & Business Strategy 8th Edition by Michael Baye,Jeff Prince

Exercise 13

You are the manager of 3D Designs-a large imaging company that does graphics and web design work for companies. You and your only competitor are contemplating the purchase of a new 3-D imaging device. If only one of you acquires the device, that firm will earn profits of $20 million and the other firm will lose $9 million. Unfortunately, there is only one 3-D imaging device in the world, and additional devices will not be available for the foreseeable future. Recognizing this fact, an opportunistic salesperson for the company that makes this device calls you. She indicates that, for an additional up-front payment of $23 million (not included in the above figures), her firm will deliver the device to your company's premises tomorrow. Otherwise, she'll call your competitor and offer it the same deal. Should you accept or decline her offer? Explain.