This is only one question which has 4 parts . i previously posted this question

Question

This is only one question which has 4 parts . i previously posted this question but only 1 and 2 was answered, please answer 3 and 4 . please

Question #2: Consider two companies that are thinking about expanding to the international market. The international market is expensive to enter, and if they both enter, the cost of competition will outweigh the benefits of the new market. However, monopoly access to the international market will result in increased gains. The exact payoffs are outlined in the game below Domesti International Domestic 530, 530 510, $45 CompanY A Internati $45, 10 $20, $20 1. What is the dominant strategy Nash equilibrium of this Game? 2.How would this game differ if the two companies entered into a contract wherein both agreed to stay out of the international market for the year? A is much more well-suited to the 3. Consider an adjustment to the game where Comp international market, and thus their psyoff from entering the foreign market alone is much higher any Company B Domestic International Domestic 530, 530 510, $45 CompanY A International 75, 10 520, $20 How does this change the outcome, even with a contract? 4. Use the games sbove to explain Coase's Invariance Principle

Explanation / Answer

Okay, I will answer 3 and 4 as asked.

3> We cab see that if company A can go international and company B go domestic, they get a total of $85. Thus it is the most profitable option. In the contract, company A may offer $20 to B so that he gets to choose domestic.

Thus, the outcome is Company A going international and company B going domestic,

4> The Coase theorem states that if trade in an externality is possible and there are sufficiently low transaction costs, bargaining will lead to a Pareto efficient outcome regardless of the initial allocation of property. Here, we can see that the contract leads to a Pareto efficient outcome with the highest payoff to each.

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