Two drug companies, Company A and Company B, produce drugs in the same field of medicine. Each can choose to spend little or a lot on research. If only one spends more, it will produce better drugs more often and will make large profits. However, if both spend more, the result is that each makes the other’s drugs obsolete more quickly, with less profits for both. The following shows their payoff matrix:

a. What will be the result if they collude?

b. What will be the result with a maximin strategy?

c. What will happen if this game is played over and over?

Transcribed Image Text:

Drug Company B's Choices Spend Little Spend a Lot Spend Little A gets B gets Drug Company A's Choices A gets B gets $200 $200 $50 $300 Spend a Lot A gets B gets A gets B gets $300 $50 $100 $100