Suppose Yamaha and Hero must decide whether to make a new style of side-impact airbags standard equipment on all models.

Suppose Yamaha and Hero must decide whether to make a new style of side-impact airbags standard equipment on all models. Side-impact airbags raise the price of each automobile by $1,000. The company will earn profits of $2 billion each if they make the airbags. If neither company adopts the technology, each company will earn $3.5 billion. If one company acquire the technology and the other does not, the adopting company will earn a profit of $4.5 billion and the non-acquiring company will earn $0.5 billion.

a. If a decision is to be made for Hero, should the side-impact airbags standard equipment be made?

b. If Yamaha and Hero were able to cooperate, is this expected to bring the same outcome?

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