Consider a market with two computer manufacturers, Banana and Avocado. In the following WWDC22 event, each firm can choose either to launch a new product or stay with the old model. If both firms launch new products, the payoffs are -20 to each firm. If Banana chooses the new model and its opponent chooses the old, the payoffs are 100 for Banana and 20 for Avocado. If Avocado chooses the new model and Banana chooses the old, the payoffs are 10 for Banana and 60 for Avocado. Both firms get a payoff of 40 if they stay with the old. As a result, the payoffs are given by the following unfinished table. The first payoff is for Banana.
Avocado
Banana
Old
New
Old
Blank 1
Blank 2
New
Blank 3
Blank 4
1. Which of the following is correct for the missing payoff blanks 1-4?
a) 40,40; 10,60; 100,20; -20,-20
b) 100,20; -20,-20; 10,60; 40,40
c) 40,40; 60,10; 20,100; -20,-20
d) 100,20; -20,-20; 40,40; 60,10
e) 10,60; 40,40; 20,100; -20,-20
2. The two firms are simultaneously deciding their strategies, which of the following accurately describes the Nash Equilibrium/Equilibria (NE) of the game?
a) NE={10,60}
b) NE={100,20}, NE={10,60}
c) NE={Old, New}
d) None of the other answers is correct
e) NE={New, Old}, NE={old, New}
3. Now consider the game when Banana is the market leader and chooses New or Old first, Avocado observes its opponent before deciding either New or Old. In this game, which of the following is true?
a) Avocado has a first-mover advantage.
b) Banana has a second-mover advantage.
c) In subgame perfect equilibrium Banana chooses to develop new products.
d) In subgame perfect equilibrium Banana chooses to stay with old products.
e) None of the other answers is correct.
4. Now consider the game when Avocado chooses New or Old first, Banana observes its opponent before deciding either New or Old. In this game, which of the following is true?
a) In subgame perfect equilibrium Avocado chooses to stay with old products.
b) In subgame perfect equilibrium Avocado chooses to develop new products.
c) Avocado has a second-mover advantage.
d) Banana has a first-mover advantage.
e) None of the other answers is correct.