Plizer is one of the largest pharmaceutical companies in the world and has a…

Plizer is one of the largest pharmaceutical companies in the world and has a patent on a drug that treats heartburn. If the patent is about to expire, then Pfizer has two options: It can continue to charge a high price for its product or charge a low price. After the patent expires, a drug company that produces generic drugs must decide whether to enter the market or not enter the market. The profits for each scenario are given in the accompanying payoff table.
a. The Nash equilibrium when Pfizer and the generic manufacturer are making these decisions simultaneously is that Pfizer and the generic manufacturer:
charges a low price & stays out of the market.
charges a high price & enters the market.
b. Suppose Pfizer was able to allow the generic manufacturer to make a decision first and then responded to that decision with their pricing strategy. Compare the outcome in this scenario to the outcome in the simultaneous play game from part a. In the simultaneous-play game Pfizer earns. By waiting for the generic manufacturer to make the first move, Pfizer earns. Their gain a second-mover advantage by waiting.
c. Now, suppose Pfizer elects their pricing strategy first and allows the generic manufacturer to respond to their decision. Compare the outcome in this scenario to the outcome in the simultaneous play game from part a. By making the first move, Pfizer earns. Therefore, Pfizer gains a first-mover advantage. In a practice known as pay to delay, some will pay a rival in exchange for a guarantee that the rival does not enter the market.
d. In a sequential-play game, what is the most that Pfizer would be willing to pay the generic manufacturer not to enter the market? Pfizer’s maximum payment: $ billion