Consider an industry with two firms. Each firm can spend either 0, $1, or $4 on a lobbying effort. Call the amount spent by Firm i, Li. Now, regardless of their lobbying effort, each firm gets an identical subsidy having present value . (This subsidy depends on both the total lobbying effort and on how widespread it is.)
Treating it as a 2-player game, construct a 3 × 3 diagram showing the net payoffs of each firm.
Find all Nash equilibria for the game.
Which is the most likely outcome? Why?