Consider a two stage game in which firm 1 makes a strategic commitment on R&D to...

 

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Consider a two stage game in which firm 1 makes a strategic commitment on R&D to reduce production cost in the first period, and two firms engage in Cournot competition in the second period. Assume that firm 1 invests $K on R&D that reduces the constant production cost per unit from $2 to $c. The market demand function is given by Q = 10-p. Is the strategic commitment tough or soft? (5%) Under what conditions will this investment in R&D benefit firm 1 itself? (finding the conditions in terms of K and c) (10%) a. b. C. According to the taxonomy of business strategies we discussed in class, what kind of business strategy is this? Why? (5%) Consider a two stage game in which firm 1 makes a strategic commitment on R&D to reduce production cost in the first period, and two firms engage in Cournot competition in the second period. Assume that firm 1 invests $K on R&D that reduces the constant production cost per unit from $2 to $c. The market demand function is given by Q = 10-p. Is the strategic commitment tough or soft? (5%) Under what conditions will this investment in R&D benefit firm 1 itself? (finding the conditions in terms of K and c) (10%) a. b. C. According to the taxonomy of business strategies we discussed in class, what kind of business strategy is this? Why? (5%)

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This question pertains to strategic commitments in a twostage game with a focus on RD investments effects on competition and cost structures Ill address each part of the question a Is the strategic co... View the full answer