QUESTION 5

A computer manufacturer, firm A, is considering whether or not to move from the USB-C

connector standard to a new, more efficient and cheaper to produce standard called USB4.

Most of the accessories for firm A's computers are produced by firm B. In turn, firm B's

accessories are mainly sold to people using firm A computers. Firm B is currently using the

USB-C interface for all the accessories it makes and has been told about firm A considering

USB4. Analyse the interaction between the two firms using game theory. Present a payoff

matrix to model the situation and analyse it for Nash equilibrium. Which is the best outcome

for each firm? Which is the best outcome for society as a whole? What can be done by the

firms or government to make society's best outcome more likely?