Question
Two companies are operating: Telstra purchases inputs from a supplier where the cost to the supplier is $10 million per year and the value to
Two companies are operating: Telstra purchases inputs from a supplier where the cost to the supplier is $10 million per year and the value to Telstra is $14 million per year, so there is $4 million per year surplus to be split between them. They both can hire a negotiation consultant for half a million dollars each. Now if neither hires a consultant then they should split the $4 million surplus equally. If one hires a consultant then it expects 75% of the surplus minus the consultant fee. If they both hire consultants, then they cancel each other out and they each expect to get half of the pot less the cost of their consultant. What does the equilibrium of this simultaneous move game look like?
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