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An incumbent and an entrant ght over a lucrative market. The incumbent moves first and makes a decision whether to invest in product development (R&D)

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An incumbent and an entrant ght over a lucrative market. The incumbent moves first and makes a decision whether to invest in product development (R&D) or not. If the incumbent undertakes R&D, the entrant can invent its own technology or copy that of the incumbent, and the incumbent may then accommodate entry or ght the entrant. The entrant can also try to license the technology. to which the incumbent may agree or not. In case the incumbent does not undertake R&D and therefore operates an existing technology, the entrant only has a choice between investing in R&D or not. The game with payoffs is as follows. 10, 10 5,5 0, 20 -5, 0 30, 5 10, 5 5, 20 What are the payoffs when I undertakes R&D, E copies, and | ghts? 0 Both get -5. 0 Both get 0. O | gets -5; E gets 0. O | gets 0; E gets -5. How many possible strategies does I have? (Hint: it's 2 to the power of the number of information sets where I moves.) 0 2. O 6. O 10. O 32

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