Question
Assume that labs 1 and 2 sign the following agreement: Each laboratory is free to assign its researchers maximizing its own profits. However, we commit
Assume that labs 1 and 2 sign the following agreement: Each laboratory is free to assign its researchers maximizing its own profits. However, we commit to share the outcome of the joint project as follows: If 12,000, lab 1 takes 8,000 and lab 2 takes 4,000. If < 12,000, we commit to share all the research with a firm that can produce a generic medicine and keep no more than 1,000 each. Show that under such an agreement, the Nash equilibrium consists in having each lab selecting the number of researchers that you found in question i. What issue would you have with such an equilibrium?
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