Untitled

also increased it with respect to Radica (see Table 5); In terms of net investment in R&D, although
in the year 2006 Mattel reduced its net investment (as percentage of assets); however, in the quarter
where the negotiation …nished, Mattel increased its expenditures in R&D (see Table 4). Although
it is hard to justify this causality using aggregate data on Mattel’s R&D, it is “possible”that, like
in Gans and Stern model, this increment in R&D expending is a signal that Mattel is sending to
Radica about the seriousness of its strategic plan of obtaining know-how to enter in the electronic
segment of the toy industry. The development of electronic games by Mattel such as AcceleRacer,
Pixel Chix, and Vidster in 2005 follow this line of reasoning, which tend to decrease the expected
value of :
4.4 Equilibrium
Gans and Stern (2000) show that equilibrium exists in their formal game; that is, there is a
where the cost and bene…ts of each …rm “balance”. In that speci…c case the agreement is reached
in the …rst round of negotiation and both …rms maximize, within its own set of restrictions, their
total value. What happened in the Mattel-Radica case? In mid-October both management teams
announced that they had reached an agreement where Mattel bought Radica for $230 million
dollars. In terms of Gans and Stern model, they reached a Subgame Perfect Nash Equilibrium
where = 230; 000; 000:
4.4.1 Example
In order to get some intuition of this equilibrium output consider a much simpler version of the
Mattel-Radica Acquisition game.
Insert Table 6 around here
17