Essay
Suppose the market for computer chips is dominated by two firms:
Intel and AMD.Intel has discovered how to make superior chips and is considering whether or not to adopt the new technology.Adoption would entail a fixed setup cost of C but would increase revenues.However,if Intel adopts the new technology,AMD can easily copy it at a lower setup cost of C/2.If Intel adopts and AMD does not,Intel would earn $20 in revenues while AMD would earn $0.If Intel adopts and AMD does likewise,each firm will earn $15 in revenues.If Intel does not adopt the new technology,it will earn $5 and AMD will earn $2.
a.Write this game in extensive form.
b.Under what conditions (i.e.,for what values of C)does AMD have an incentive to adopt the new technology if Intel introduces it?
c.If C = 12,should Intel adopt the new technology?
Correct Answer:
Verified
a.See the figure below.
b.AMD's payoff...View Answer
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Correct Answer:
Verified
b.AMD's payoff...View Answer
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