Apple and Samsung are currently selling 4G enabled phones and earning a profit of USD 10...

Apple and Samsung are currently selling 4G enabled phones and earning a profit of USD 10 billion and USD 7 billion respectively. If Apple and Samsung both introduce 5G enabled phones, the R&D costs would bring down their profits to USD 8 billion and USD 5 billion respectively. If Apple introduces 5G enabled phones but Samsung doesn't, it sweeps the market of premium smartphones and earns a profit of USD 15 billion but Samsung makes a humble profit of only USD 2 billion. Similarly if Samsung introduces 5G enabled phones but Apple doesn't, it sweeps the premium smartphone market and earns a profit of USD 12 billion but Apple loses customers and hence makes only USD 3 billion in profit.
a. Create the payoff matrix and attach an image of the same in pdf format. The remaining answers to be typed in the box provided.
b. Identify the dominant strategy for Apple.
c. Identify the dominant strategy for Samsung.
d. What would be the Nash equilibrium?

Solutions

Expert Solution

	Samsung: 4G	Samsung: 5G
Apple: 4G	USD 10 billion; USD 7 billion	USD 3 billion; USD 12 billion
Apple: 5G	USD 15 billion; USD 2 billion	USD 8 billion; USD 5 billion

(Left side payoffs are of apple and right side payoffs are of samsung.)

b. Given that Samsung choose 4G, Apple's best response is to do R&D and introduce 5G(15).
Given that Samsung choose to do R&D and introduce 5G, Apple's best response is to do R&D and introduce 5G(8).
So, Apple's dominant strategy is to do R&D and introduce 5G as it is always its best response.

c. Given that Apple choose 4G, Samsung's best response is to do R&D and introduce 5G(12).
Given that Apple choose to do R&D and introduce 5G, Samsung's best response is to do R&D and introduce 5G(5).
So, Samsung's dominant strategy is to do R&D and introduce 5G as it is always its best response.

d. The Nash equilibrium is (5G, 5G) = (USD 8 billion; USD 5 billion) as best response of both occurs simultaneously when they both do R&D and introduce 5G.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Apple and Samsung compete in the market for phones. Apple is the market leader and so...

Apple and Samsung compete in the market for phones. Apple is the market leader and so they choose how many households to service, and then Samsung responds with their quantity choice. The marginal cost of providing a quality phone to a is $40 for each user. The total market demand for phones is 200 – 0.4Q. According to the Stackelberg model, what is Samsung reaction function to Apple?

Samsung manufactures cellular phones at a processing cost of $203 per unit. Currently, the company produces...

Samsung manufactures cellular phones at a processing cost of $203 per unit. Currently, the company produces an average of 2002 phones per day, 85 percent of which are good-quality phones, resulting in 15 percent defective phones, 62 percent of which can be reworked. The cost of reworking a defective phone is $73. They also consider a quality improvement initiative: They can replace a plastic component with a metal one which increases the initial cost of processing phone to $211, but...

Samsung manufactures cellular phones at a processing cost of $204 per unit. Currently, the company produces...

Samsung manufactures cellular phones at a processing cost of $204 per unit. Currently, the company produces an average of 2011 phones per day, 88 percent of which are good-quality phones, resulting in 12 percent defective phones, 66 percent of which can be reworked. The cost of reworking a defective phone is $74. They also consider a quality improvement initiative: They can replace a plastic component with a metal one which increases the initial cost of processing phone to $210, but...

Q1. Amos McCoy is currently raising corn on his 100-acre farm and earning an accounting profit of...

Q1. Amos McCoy is currently raising corn on his 100-acre farm and earning an accounting profit of $100 per acre. However, if he raised soybeans, he could earn $200 per acre. Is he currently earning an economic profit? Why or why not? Economic profit = Accounting profits minus implicit costs (opportunity costs). Q3. Calculate the accounting profit or loss as well as the economic profit or loss in each of the following situations: A firm with total revenues of $150 million,...

3. You are bullish on Apple stock, which is currently selling at $110 per share. You...

3. You are bullish on Apple stock, which is currently selling at $110 per share. You contribute $11,000 and borrow an additional $2,750 from your broker at an interest rate of 6% per year and invest $13,750 in the stock. (a) What is your rate of return if the stock price increases 10% during the next year? (b) How far does the stock price have to fall for you to get a margin call if the maintenance margin is 30%?...

You sell short 400 shares of Apple that are currently selling at $200 per share. You...

You sell short 400 shares of Apple that are currently selling at $200 per share. You post the 60% margin required on the short sale, and the maintenance margin requirement is 25%. At what price would you receive a margin call (assume the margin call happens immediately). $240 $248 $256 $260 None of the above You short-sell 10 shares of Amazon.com, Inc today. The stock price is $2,000 per share. What is your maximum possible gain of this trade when...

A profit-maximizing firm is currently producing output, Q = 3 units and selling at a price...

A profit-maximizing firm is currently producing output, Q = 3 units and selling at a price of p = $10. What MUST be true about the firm's costs? A The firm's Average Variable Cost is less than $10. B The firm's Average Total Cost is less than $10. C The firm's Marginal Cost is equal to $10. D The firm's Average Fixed cost must be less than $10.

Apple currently trades at $438. 1.Ignoring the time value of money, what is your total profit...

Apple currently trades at $438. 1.Ignoring the time value of money, what is your total profit with a stock price of $426? 2.What is your total profit if you consider the time value of money? The risk-free rate is 0.01 (EAR).

An 10-year IBM bond is currently selling for $791.36. The coupon rate is 10% paid annually....

An 10-year IBM bond is currently selling for $791.36. The coupon rate is 10% paid annually. What will be the price of the bond six years from today if the same yield to maturity hold? $855.81 $936.60 $783.72 $844.46 $813.56

A 10-year U.S. Treasury bond with a par value of $ 1000 is currently selling for...

A 10-year U.S. Treasury bond with a par value of $ 1000 is currently selling for $ 1025. The bond carries a 7.5% p.a. coupon payable annually. If purchased today and held to maturity, what is its expected yield to maturity? Does your answer change if the coupon payments of 7.5% p.a. are made half-yearly (i.e. 3.75% every half -year)? How & why? Could you please show me step by step calculations so I can understand? thank you.

Subjects