Large Corporation and Small Company both produce applications for smart phones. Most recently, they are both thinking of developing an app that that allows bird watchers to record the songs sung by birds in the wild, with the app able to identify their species. Unfortunately, the app cannot be patented, and it is easily copied. The app will generate sales revenues of $10 million. The cost to Large of developing the app is $2 million, while the cost to the Small is only $1 million, as it is a more nimble and flexible operation. If they both work on developing the app, then Large has an advantage in marketing and gets revenues of $7 million while Small gets $3 million. If only Large works on development, then the revenue split is $6, $4, respectively; and if only Small works on development, then the split is $8 going to Large and $2 going to Small.

A. Suppose that Large moves first and there is perfect information. Depict the extensive and normal forms of the game.

B. Instead suppose that Small moves first and information is perfect. Sketch the extensive and normal forms.

C. Finally, suppose the firms move simultaneously. Sketch the extensive and normal forms

Answer rating: 100% (QA)

A The extensive form of the game would be as follows Large Corporation and Small Company both produce applications for smart phones Most recently they are both thinking of developing an app that that ... View the full answer