Two firms dominate the market for surgical sutures and compete aggressively with respect to research and development. The following payoff table depicts the profit implications of their different R&D strategies.
a. Suppose that no communication is possible between the firms; each must choose its R&D strategy independently of the other. What actions will the firms take, and what is the outcome?
b. If the firms can communicate before setting their R&D strategies, what outcome will occur?Explain.

Transcribed Image Text:

Firm B's R&D Spending Low Low 8, 11 12,9 High 11,6 Medium 6, 12 8, 10 10, 8 High 5, 14 6, 8 4. 6 43W Firm A's R&D Spending Medium