Suppose Ford and Honda are considering making electric powered cars. Their payof

Question

Suppose Ford and Honda are considering making electric powered cars. Their payoffs are in the table below and follow the same pattern as the previous problem.

A. If Ford and Honda make their decision at the same time what do both firms do?

B. Would your answer change if the US Government provided Ford with a $55 million dollar incentive payment to produce electric cars. Does this new information affect the outcome from part A?

Ford Enter Do Not Enter Enter -40 0 Honda 10 250 Do Not Enter 200 0 0 0

Explanation / Answer

A. If both the firms take decisions simultaneously then Honda will enter and Ford will not enter.

b. If US government provided ford with a $ 55 million dollar incentive program to produce electric cars, then Honda and ford both will enter. This outcome is different from A because without incentive frd was incurring a loss of loss of -40 on entering if Honda also entered with it. But with incentive it will gain $15 million dollar on entering even if Honda enters with it.

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