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Q. The market for tennis balls is dominated by two firms: Wilson and Penn. The research department of Wilson has discovered a new technology on Explain how to make more durable tennis balls and is considering whether or not to adopt the new technique. Acceptance would entail a fixed setup cost of C but would increase revenues. However, if Wilson adopts the new technology, Penn can easily copy it at a lower setup cost of C/2. If Wilson does not adopt the new technology, it will earn $10 and Penn will earn $4. If Wilson adopts and Penn does likewise, each firm will earn $30 in revenues. If Wilson adopts and Penn does not, Wilson would earn $40 in revenues while Penn would earn $0.

(a)Write this game in extensive form.

(b) Under Illustrate conditions (i.e., for Illustrate values of C) does Penn have an incentive to adopt the new technology if Wilson introduces it?

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M9159445

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