Pfizer and a competitor, Astra-Zeneca, are considering developing a new drug for a particular illness at the same time. The illness is relatively rare but the fixed cost of production is very high. In

Exploring Economics
8th Edition
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:Robert L. Sexton
Chapter15: Oligopoly And Strategic Behavior
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Pfizer and a competitor, Astra-Zeneca, are considering developing a new drug for a particular illness at the same time. The illness is relatively rare but the fixed cost of production is very high. In particular, the forecast demand for such a drug is insufficient to cover both firms’ costs. Analyse the interaction between the two firms using game theory. Present a payoff matrix to model the situation and analyse it for Nash equilibrium. What can either of these firms do to make their best, most- preferred outcome more likely?

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