Microsoft and Electronic Arts are separate companies. Microsoft produces the Xbox One game console, and Electronic...

 

  

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Microsoft and Electronic Arts are separate companies. Microsoft produces the Xbox One game console, and Electronic Arts creates games for the Xbox One. The two firms must independently decide on the amount to invest in two separate but complementary projects: Electronic Arts must decide how much to invest in the development of games the next generation of the Xbox, and Microsoft must decide how much to invest in the development of the next generation of the Xbox game console. Each firm can invest a high amount, a medium amount, or a low amount. The game tree shows hypothetical profits of the two firms from different scenarios. High invest M: $700 EA: $600 Electronic Arts Medium invest M: $200 EA: $700 High invest Low invest M: $100 EA: $500 High invest M: $600 EA: $450 Microsoft Medium invest Electronic Arts Medium invest M: $500 EA: $550 Low invest M: $300 EA: $400 Low invest High invest M: $550 EA:-$200 Electronic Arts Medium invest M: $400 EA: $100 Low invest M: $200 EA: $250 a). Suppose that the amount of Microsoft's investment must be set first. What will the outcome be? Explain your answer. b). Specify strategies at all decision nodes. 2 Now suppose that Microsoft and Electronic Arts can sign a contract specifying the amount of each firm's investment. Will the outcome differ from part 1 and how? c). Suppose that the amount of Microsoft's investment must be set first. What is the Nash equilibrium outcome? Microsoft and Electronic Arts are separate companies. Microsoft produces the Xbox One game console, and Electronic Arts creates games for the Xbox One. The two firms must independently decide on the amount to invest in two separate but complementary projects: Electronic Arts must decide how much to invest in the development of games the next generation of the Xbox, and Microsoft must decide how much to invest in the development of the next generation of the Xbox game console. Each firm can invest a high amount, a medium amount, or a low amount. The game tree shows hypothetical profits of the two firms from different scenarios. High invest M: $700 EA: $600 Electronic Arts Medium invest M: $200 EA: $700 High invest Low invest M: $100 EA: $500 High invest M: $600 EA: $450 Microsoft Medium invest Electronic Arts Medium invest M: $500 EA: $550 Low invest M: $300 EA: $400 Low invest High invest M: $550 EA:-$200 Electronic Arts Medium invest M: $400 EA: $100 Low invest M: $200 EA: $250 a). Suppose that the amount of Microsoft's investment must be set first. What will the outcome be? Explain your answer. b). Specify strategies at all decision nodes. 2 Now suppose that Microsoft and Electronic Arts can sign a contract specifying the amount of each firm's investment. Will the outcome differ from part 1 and how? c). Suppose that the amount of Microsoft's investment must be set first. What is the Nash equilibrium outcome?

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a Suppose that the amount of Microsofts investment must be set first What will the outcome be Explai... View the full answer