Suppose that mergers in the pharmaceutical industry leave only two large firms: ProMed and BioMed. These two companies are currently considering developing revolutionary treatments to overcome a rare disease. This development would be very expensive and strategically it is complex and risky. Indeed, each firm is afraid that one will discover the right drug before the other and thus obtain a competitive advantage.

In order to analyze the impact of this development, consider the strategic interaction pertaining to this situation:

initially, each firm gets $100 million in revenue from its customers; the development of the new treatment costs 150 million dollars, but makes it possible to monopolize all the revenues of the competitor plus 100 million in additional income.

Question 1:

Represent this situation in matrix form by completing the following two-way table. In each box, write the profits of BioMed and ProMed (expressed in millions)

ProMed Developper Ne pas developper Developper BioMed Ne pas developper