Problem: In the initial videocassette market (home use), there were two competing standards: Sony’s Betamax and the VHS standard. Using hypothetical payoffs, we can analyze how both manufacturers can benefit from cooperation rather than competition. The following lists the payoffs for rival manufacturers and Sony in their decision to adopt one of the standards.
Rival Manufacturers
Betamax VHS
Betamax 500 400 100 300
SONY
VHS 300 100 400 500
(All payoffs are in millions of dollars of additional profits)
1) Does Sony and/or the rival manufacturers have a dominant strategy? Explain.
2) Are there any Nash equilibria here? Explain and show how the equilibrium might be supported. Which outcome would Sony prefer, and why? Be sure to discuss cooperative vs. non-cooperative outcomes.