Synergies: Two division managers can invest time and effort in creating a better working relationship. Each invests ei ? 0, and if both invest more then both are better off, but it is costly for each manager to invest. In particular the payoff function for player i from effort levels (ei, ej ) is vi(ei, ej ) = (a + ej )ei ? e2 i . a. What is the best-response correspondence of each player? b. In what way are the best-response correspondences different from those in the Cournot game? Why? c. Find the Nash equilibrium of this game and argue that it is unique.

Nash equilibrium outcome ? 5.10 Synergies: Two division managers can invest time and effort in creating a better working relationship. Each invests e; 2 0, and if both invest more then both are better off, but it is costly for each manager to invest. In particular the payoff function for player i from effort levels (e;, e;) is vi(e;, e;) = (atepei - et. a. What is the best-response correspondence of each player? b. In what way are the best-response correspondences different from those in the Cournot game? Why? c. Find the Nash equilibrium of this game and argue that it is unique