Suppose Toyota Corp. and Honda Corp. are deciding whether to make mobile wifi a standard feature...

Suppose Toyota Corp. and Honda Corp. are deciding whether to make mobile wifi a standard feature on next year’s economy-size car models. If both firms make wifi standard, Toyota will earn $5 billion in profit and Honda will earn $5.2 billion in profit. If neither adopts wifi as standard, then Toyota will earn $6 billion in profit and Honda will earn $3.8 billion in profit. If Toyota adopts the technology and Honda doesn’t, then Toyota will earn $4 billion in profit and Honda will make a loss of $2 billion. If Honda adopts the technology and Toyota doesn’t, then Honda will earn $2.5 billion in profit and Toyota will make a loss of $0.5 billion. These profits are all the companies care about.

(i) Suppose this is a simultaneous decision. Create a game table illustrating the above scenario, where each player’s payoff is its profit.

Suppose you are a strategic consultant for Honda Corp. Based on the above table, explain in common language what recommendation you would give to Honda? Do either of the firms have a dominant strategy? What is the Nash equilibrium? Use and explicitly refer to the information from your table in your answer.

(ii) Suppose this is a sequential decision, with Toyota Corp. as the first mover. Create a game tree illustrating the above scenario, where each player’s payoff is its profit.

Suppose, again, that you are a strategic consultant for Honda Corp. Based on the above tree, explain in common language what Honda should do? What is the rollback equilibrium? Use and explicitly refer to the information from your tree in your answer.

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Expert Solution

Rahul Sunny answered 11 months ago

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