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Question 7 [Max 200 words, 6 marks] Consider two hypothetical firms: Netex, considering an investment on developing an electric vehicle; and Plugcar, looking into the
Question 7 [Max 200 words, 6 marks] Consider two hypothetical firms: Netex, considering an investment on developing an electric vehicle; and Plugcar, looking into the profitability of building charging stations for electric vehicles. Each rm has two possible strategies: 'Innovate' and 'Do not innovate'. If both firms decide to innovate, the payoffs are high because electric vehicles and charging stations complement each other. If one rm innovates and the other does not, the former experiences a loss because the innovation cannot be profitable without the other. The matrix below describes the hypothetical payoffs. Netflex Innovate Do not innovate 1.0 0 1.0 0.5 Pl Hg (:a l Innovate DO not innovate 0.5 0 Find the Nash equilibriurn(s) of this game. Provide your reasoning by referring to the payoff matrix above. Your reasoning must include the best responses of each firm. Question 8 [Max 200 words, 6 marks] Keep considering the same game and the payoff matrix from the previous question. Discuss Whether the game between Netflex and Plugcar is an invisible hand game. Your discussion must start by explaining what an invisible hand game is. Question 9 [Max 200 words, 8 marks] Discuss how the incentives for rms to innovate (or invest on R&D) are related to the degree of product differentiation. Your discussion must refer to the notion of market power. There is no need to refer to the payoff matrix from the previous questions
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