Can sega trust nintendo to cooperate

Reference no: EM13198737

Wii video game consoles are made by Nintendo, and some games are produced by third parties, including Sega. The unit cost of a console to Nintendo is $30, and of a game to Sega is $10. Suppose, each month, Nintendo considers prices $250 and $350 for consoles, and Sega considers $40 and $50 for games. If they choose prices $250 and $40 for consoles and games, then demands are 2 and 4 (in millions); if $250 and $50, then 1.5 and 3 (in millions); if $350 and $40, then 1.5 and 3 (in millions); and if $350 and $50, then 1 and 2 (in millions).
How are the two goods related?
What price should Nintendo choose in this pricing game if Nintendo and Sega can set different prices in January and in February and in March?
Are there mutual gains from cooperation? If so, can Nintendo trust Sega to cooperate? and can Sega trust Nintendo to cooperate?

Reference no: EM13198737

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