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Game theory tools for firms making R&D investment decisions

Formulate the following situation as an extensive form game (using a game tree) and solve it using backward induction. Bingo Corporation and Canal Corporation are the only competitors in the electronic organizer industry. Bingo Corporation is considering an R&D investment to improve its product. Bingo can choose from three levels of investment: High, Medium, and Low.

Following Bing's investment, Canal Corporation will have to choose between continuing to compete by selling its current product or undertaking an R&D project of its own. Canal can only choose one level of investment, so its choices are Invest or Not Invest. The net payoffs to Bingo if it invests High, Medium, or Low given that Canal chooses to Invest would be $50,$40, and $30' respectively, and the corresponding net payoffs to canal would be $5, $10, and $15.

On the other hand, the net payoffs to Bingo if it invests High, Medium, or Low given that Canal chooses to Not Invest would be $100, $80, and $60, respectively, and the corresponding net payoffs to Canal would be $0, $l5, and $20. What will Bingo choose to do in equilibrium, and what will Canal's response be?

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Game Tree problem to be solved using backward induction. Help!
Formulate the following situation as an extensive form game (using a game tree) and solve it using backward induction.
Bingo Corporation and Canal Corporation are the only competitors in the electronic organizer industry. Bingo Corporation is considering an R&D investment to improve its product. Bingo can choose from three levels of investment: High, Medium, and Low. Following Bingo's investment, Canal Corporation will have to
choose ...

Solution Summary

I provide a game theory analysis of two firms deciding whether to engage in R&D projects. The strategic and extensive forms of the game are explored to find the optimal solution. There is a discussion of various ways to find the optimal discussion based on the strategic and extensive forms of the game.

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