Superb Professors

Two companies are interdependent. When Beta Company acts, it affects Gamma Industries. Beta has two actions, A and B. Gamma has two actions D and E. I’ll present the payoffs:

Beta

A
B

Gamma
D
$30/ $10
$16 / $20

E
$20/ $25
$15/ $22

If Beta chooses A and Gamma chooses D then Beta gets $10 and Gamma gets $30. If Beta chooses A and Gamma chooses E then Beta gets $25 and Gamma gets $20. The other cells can be interpreted similarly. Beta and Gamma are rational and Beta can reasonably foresee Gamma’s decisions, because these payoffs are common knowledge. If the firms are independent and Beta moves first, what actions will they take?

a.
Beta chooses A and  Gamma chooses E.

b.
Beta chooses A and Gamma chooses D.

c.
Beta chooses B and Gamma chooses D.

d.
Beta chooses B and Gamma chooses E.

 
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