Strategic Product Launch
Two companies, Firm A and Firm B, are deciding whether to launch a new product ('Launch') or stick with their existing product line ('Wait'). The table below shows the potential profits (in millions of dollars) for each combination of decisions. The first number in each cell is the profit for Firm A, and the second is the profit for Firm B.
| Firm B | |||
| Launch | Wait | ||
| Firm A | Launch | (10, 5) | (15, 2) |
| Wait | (4, 12) | (8, 8) | |
Assuming Firm A decides to 'Launch' its new product, what is the best response for Firm B to maximize its own profit? Explain your reasoning by comparing Firm B's potential outcomes.
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