2- MagicPill Inc. has developed a new wonder drug for curing obesity that has been approved by the Food and Drug Administration. If the drug is released for sale, a competitor, GenDrug, will attempt to copy the formula and steal al of MagicPill's customers by offering the wonder drug at a lower price. (Assume there are no patent laws at this time.) The extensive form of the game is shown below (payoffs represent profits in millions of dollars): (a) Should MagicPill release this new wonder drug for sale? Explain.

(b) Would your answer to (a) change if GenDrug promised not to copy the new drug? Explain.

(c) Would your answer to (a) change if GenDrug signed a contract with MagicPill promising to pay $10 million if it copies the drug? Explain.

(d) How would your answer to (a) change if patent laws protect MagicPill's right to produce its new wonder drug?

Transcribed Image Text:

MagicPill Release drug Copy drug (-10, 20) Don't release drug GenDrug Don't copy drug (100, 5) (10,4) MagicPill Release drug Copy drug (-10, 20) Don't release drug GenDrug Don't copy drug (100, 5) (10,4)

Answer rating: 100% (QA)

a It should not release the new drug So that it can gain payoff 104 b ... View the full answer