Proctor and Gamble and Kimberly-Clarke dominate the U.S. diaper market with shares of about 50 percent and 35 percent respectively. Both firms invest large sums in R&D to continually reduce the cost of making better performing diapers. The payoff table shows the companies' profits ($millions) from different R&D strategies.
a. Identify the (Nash) equilibrium of the accompanying payoff table.

b. The companies have competed for decades and make R&D decisions every year. If the competition were to go on indefinitely, what strategies might the companies employ to their mutual benefit? (Communication or collusion is not possible.) Explain briefly.
c. R&D competition is quite different from price competition. Price changes can be implemented immediately and are immediately known to the other firm. R&D spending takes time to yield results (sometimes a blockbuster new product) and is much harder to discern by one's rival. For the repetitive competition in part (b), in what ways does R&D competition make things more difficult for the firms to achieve mutual long-term profits?

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Kimberly-Clark Medium R&D Procter and Gamble Medium R&D High R&I High R&D 300, 550 400, 250 600, 400 700, 150