Question: Suppose Toyota and Honda must decide whether to make a
Suppose Toyota and Honda must decide whether to make a new breed of side- impact airbags standard equipment on all models. Side- impact airbags raise the price of each automobile by $ 1,000. If both firms make side- impact airbags standard equipment, each company will earn profits of $ 2.5 billion. If neither company adopts the side- impact airbag technology, each company will earn $ 1 billion (due to lost sales to other automakers). If one company adopts the technology as standard equipment and the other does not, the adopting company will earn a profit of $ 3 billion and the other company will lose $ 1.5 billion. If you were a decision maker at Honda, would you make side- impact airbags standard equipment? Explain.
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