What is the outcome of the game if both players are rational

Reference no: EM133318715

Vaxiboost is a new, generic pharmaceutical product sold by Sanitex and Toptabs. Both are considering their pricing decisions for the next year. Payoffs under different combinations of decisions are as follows:

If both Sanitex and Toptabs price high, both will receive profits of £3m in the coming year.

If Sanitex prices high and Toptabs prices low, Sanitex will receive profits of £0.7m and Toptabs will receive profits of £6m.

If Sanitex prices low and Toptabs prices high, Sanitex receceive profits of £5m and Toptabs will receive profits of £2m.

If both Sanitex and Toptabs price low, both will receive profits of £0.1m.

Suppose that Sanitex can publish its prices for the year before Toptabs. Draw a diagram of the sequential game in extensive form showing and labelling clearly all three subgames. What is the outcome of the game if both players are rational and fully informed, and both reason using backward induction?

Reference no: EM133318715

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