Suppose that U.S.-based Qualcomm and European-based T-Mobile are contemplating infrastructure investments in a developing mobile telephone market. Qualcomm presently uses a code-division multiple access ( CDMA) technology, which almost 67 million users in theU.S. utilize. In contrast, T-Mobile uses a global systems formobile communication (GSM) technology that has become the standard in Europe and Asia. Each company must (simultaneously andindependently) decide which of these two technologies to introducein the new market. Qualcomm estimates that it will cost
$ 900 million to install its CDMA technology and $ 1.8 billion to install GSM technology. T-Mobile's projected cost of installing GSM technology is $ 950 million, while the cost of installing the CDMA technology is $2.5 billion. As shown in the accompanying table,each company's projected revenues depend not only on the technology it adopts, but also on that adopted by its rival.
Projected Revenues for Different Combinations of Mobile
Technology Standards ( in billions)
Standards Qualcomm's T-Mobile's
(Qualcomm-T-Mobile) Revenues Revenues
CDMA-GSM $12.9 $8.95
CDMA-CDMA $16.9 $14.5
GSM-CDMA $15.8 $ 9.5
GSM-GSM $14.8 $ 18.95
Construct the normal form of this game. Then explain the economic forces that give rise to the structure of the payoffs and any difficulties that the companies might have in achieving Nash equilibrium in the new market.
Suppose that U.S.-based Qualcomm and European-based T-Mobile are contemplating infrastructure investments in a developing mobile telephone market. Qualcomm presently uses a code-division multiple access ( CDMA) technology, which almost 67 million users in theU.S. utilize. In contrast, T-Mobile uses a global systems formobile communication (GSM) technology that has become the standard in Europe and Asia. Each company must (simultaneously andindependently) decide which of these two technologies to introducein the new market. Qualcomm estimates that it will cost
$ 900 million to install its CDMA technology and $ 1.8 billion to install GSM technology. T-Mobile's projected cost of installing GSM technology is $ 950 million, while the cost of installing the CDMA technology is $2.5 billion. As shown in the accompanying table,each company's projected revenues depend not only on the technology it adopts, but also on that adopted by its rival.
Projected Revenues for Different Combinations of Mobile
Technology Standards ( in billions)
Standards Qualcomm's T-Mobile's
(Qualcomm-T-Mobile) Revenues Revenues
CDMA-GSM $12.9 $8.95
CDMA-CDMA $16.9 $14.5
GSM-CDMA $15.8 $ 9.5
GSM-GSM $14.8 $ 18.95
Construct the normal form of this game. Then explain the economic forces that give rise to the structure of the payoffs and any difficulties that the companies might have in achieving Nash equilibrium in the new market.
