Given the imminent threat of a new prostate cancer drug from J&J, Pfizer has hired you as a consultant to evaluate this acquisition. In addition to the information reported in the popular press (above), your research into the company has revealed the following: if Pfizer withdraws its bid and does not acquire Medivation, Sanofi will have the opportunity to either acquire the firm for $12 billion (their final bid), or pass.

The patents of both Xtandi and Zytiga expire in 10 yearsonce that happens, generics will enter the market and prices will fall so much that profits will be negligible. For the next 10 years, the total profits (before acquisition costs) will stay the same at $3 billion annually, but who gets what will depend on how many competitors there are in the market:

Table 1: Summary of Profits

		Medivation Aquired	Medivation Not Acquired
J&J launches new product	Medivation profts*	$1.5 b	$0.7 b
	J&J profits	$1.5 b	$2.3 b
J&J doesnt launch	Medivation profts*	$2.55 b	$0.4 b
	J&J profits	$0.45 b	$2.6 b

* Medivations profits go to its acquirer if either Pfizer or Sanofi acquires it.

All profits annual, and do not account for fixed costs such as acquisition, clinical trials, fines, etc.

In order for J&J to launch this new drug, however, theyll still need to spend $5 billion for safety testing, final rounds of clinical trials, and marketing to launch the drug, so theyre waiting to see whether Medivation gets acquired or not. Pfizer wants you to use game theory to determine whether they should go through with the deal or back out.

QUESTION: Who are the players in this game? (List the names of the relevant players only, no additional information is needed) What actions are available to each of the relevant players? (Answer should be in the form of a list of players and actions; no additional explanation is necessary)

Another consultant on the project has looked at the summary of profits in Table 1 (above). They argue that since Medivation's profits will be significantly higher once acquired, it definitely makes sense to acquire them. You point out that it depends on the actions of the other firms. Apply game theory, describe different potential outcomes, and find the Nash Equilibrium outcome.

(The descriptions of the different outcomes should include which choices Pfizer's competitors made, and what Pfizer's profits would be if their competitors make the decisions you've described).