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Should Cisco spend more on research and development?

Based on Experiment 4.

In some games, there is no dominant strategy for all players, but you can still predict a likely outcome.

Suppose that Cisco and Juniper Networks are the main suppliers of Internet Protocol routers (networking equipment). Their payoff matrix for their advertising decisions is as given below. Does Cisco have a dominant strategy? Does Juniper Networks? If each firm does the best it can, given what it knows about the incentives facing the other, what will happen in this game?

Cisco's dominant strategy is to raise its R&D spending. Juniper Networks, however, does not have a dominant strategy. But since Juniper Networks can predict that Cisco's will follow its dominant strategy, Juniper Networks' best move is to leave its own ad spending the same. (In games like these, remember that we assume that both firms know the payoff matrix - they know the players, the strategies available and the payoffs for each player.)

 
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