Question: Two firms dominate the market for surgical sutures and compete aggressively with respect to research and development. The following payoff table depicts the profit implications of their different research and development strategies.

A. Suppose that no communication is possible between the firms; each must choose its R&D strategy independently of the other. What actions will the firms take, and what is the outcome?

B. If the firms can communicate before setting their R&D strategies, what outcome will occur? Explain.

Firm A’s R&D

Spending