Question
Two companies (firm 1 and firm 2) have a dispute to resolve over who owns the right to produce a given product. They can decide
Two companies (firm 1 and firm 2) have a dispute to resolve over who owns the right to produce a given product. They can decide to hire a lawyer or give in. If each of them engages the services of a lawyer or neither of them engages a lawyer, the outcome of the case will be determined on merit and each firm earns 40,000 cedis. If one gives in, it earns 15,000 and the other earns 45,000. Lawyers charge a fixed fee of 10,000 cedis per case. Each firm does not know whether the other will engage the services of a lawyer or not. i. Present this information as a normal form game [3 Marks] ii. Find the pure strategy Nash equilibrium or equilibria. [3 Marks] iii. Find the mixed strategy Nash equilibrium [4 Marks] iv. Interpret your answer in (iii) [3 Marks] v. Present the solutions to this game on a diagram. [4 Marks] vi. Under what condition(s) can you justify firm 1's decision to give in? [3 Marks]
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