ABC and XYZ are the two cereal manufacturers contemplating entry into a South American market. Each will be able to build one plant, and that plant can be used to make either a cereal that is high in fiber and low in calories (High Fiber) or a less healthy cereal with a sweet taste (Sweet). Once a plant is chosen to produce one kind of cereal, it will be prohibitively expensive to switch production to the other type. The following table shows the annual profit (in millions of pesos) that each firm would earn given the production choices of the two firms.
ABC's profit is the left number in each cell; XYZ's profit is the right number. For example, if ABC makes the sweet cereal and XYZ produces the high-fiber cereal, annual profits will be 50 million pesos for ABC and 60 million pesos for XYZ.
a) If the two firms choose the type of plant simultaneously, is there a unique Nash equilibrium? If so, what is it? If not, why not?
b) Would ABC have a first-mover advantage if capacities were chosen sequentially? If so, briefly explain how it might credibly implement this strategy.
c) Would XYZ have a first-mover advantage if capacities were chosen sequentially? If so, briefly explain how it might credibly implement this strategy