Suppose Microsoft and Celera are considering a joint venture to use consumers' genetic fingerprints as license keys for software registration. However, in a joint venture there is always the possibility that one partner is trying to extract proprietary trade secrets from the other, rather than trying to earn a joint profit. Suppose that there are two possible types of Microsoft: Friend and Enemy. Microsoft knows its own type, but Celera knows only that the two types are equally likely.
(a) Consider the following simultaneous game. Microsoft can "Invest" or "Sabotage," and Celera can "Reveal" or "Hide" its proprietary trade secrets. This game is shown in extensive form in the illustration that follows. Microsoft's payoffs are listed first. Translate this game into the normal form.
(b) Next consider the following dynamic game. Microsoft has some Celera stock, and it can either "Buy" more or "Sell" what it is holding. Celera observes Microsoft's action and then decides whether to "Reveal" or "Hide" its proprietary trade secrets. This game is shown in extensive form in the illustration that follows. Microsoft's payoffs are listed first. Represent this game in the normal form.
