Microscape versus Netsoft
In an epic struggle for TV-top browser software, Netsoft has developed a new product. Microscape will either leave the innovation unchallenged, or try to develop a similar product. They can either develop their own, expensive and time consuming, or hire Netsoft's engineers to do the work. Netsoft can pre-empt this raid by having its engineers sign employment contracts (expensive), or they can choose to do nothing and let Mcroscape have its way. Once Microscape has entered the market, Netsoft can either fight to defend its turf or share the market. The game tree follows:
The normal form of the game is shown below. Microscape has 4
(22, 2 nodes and 2 choices at each) strategies. Netsoft has 8
(23, three nodes and two choices at each) complete conditional
plans that it must devise.
|enterpre, entern||enterpre, stayoutn||outpre, entern||outpre, outn|
|Netsoft||p, f, f||170, -50||170, -50||400, 0||400, 0|
|p, s, f||150, 50||150, 50||400, 0||400, 0|
|n, f, f||230, 90||500, 0||230, 90||500, 0|
|n, f, s||230, 90||500, 0||230, 90||500, 0|
|p, f, s||170, -50||170, -50||400, 0||400, 0|
|p, s, s||150, 50||150, 50||400, 0||400, 0|
|n, s, f||250, 150||500, 0||250, 150||500, 0|
|n, s, s||250, 150||500, 0||250, 150||500, 0|
We read Microscape's first strategy as enterpre, entern = enter given that Netsoft signs pre-emptive contracts and enter given that Netsoft does nothing. Netsoft's first strategy is pre-empt, fight if Micrscape enters and fight if Microscape stays out.
What is the backward induction solution to the game?
Use the normal form of the game to find all of the Nash equilibria.
In the normal form is there a dominant strategy solution?
Can you use iterative elimination of dominated strategies to find a solution?
Would there be any gain to Netsoft if they could make a credible commitment to fight any entry by Macroscape? If they could make such a threat credible what would be the solution to the extensive form of the game? What form might such a threat take?