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# (Solved): Firm 1 And Firm 2 Are Competing For Franchise. The Present Value Of The Net Revenues Generated By T...

Firm 1 and firm 2 are competing for franchise. The present value
of the net revenues generated by the franchise are equal to 11.
Each firmâ€™s probability of winning the franchise is given by its
proportion of the total spent by the two firms on lobbying the
local government committee that awards the franchise. That is, if
I_{1} and I_{2} represent the lobbying expenditures
of firms 1 and 2, respectively, then firm 1â€™s probability of
winning is given by I_{1}/(I_{1} + I_{2}),
while firm 2â€™s probability of winning is
I_{2}/(I_{1} + I_{2}). If each firm assumes
that the other firmâ€™s spending is independent of its own, what is
the equilibrium level of spending for each firm?

Equilibrium for firm 1:

Equilibrium for firm 2:

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