Jacob: One candidate writes on the discussion forum: "I believe there is a problem with the answer that problems C and D are trying to extract. If the company that drops out has no chance of success, then the probabilities of success for your company does NOT change. This is a classic Monte Hall problem. The company that drops out is the door with the goat. All the other companies are the other doors. Their chance increase...your chances do not.
Of course, your chance does go up if the company that dropped out still had some chances left." What does this mean?
Rachel: Suppose ten firms compete in the market; each has a 10% chance of producing the medication first. Firm Z’s lead researcher quits, and it now has no chance of being first. It drops out of the market, leaving nine firms with an 11.1% chance for each to be first. The candidate correctly points out that
The other firms’ chances increased when the lead researcher quit.
Nothing happens when Firm Z pulls out of the market.
Jacob: How does this relate to the homework assignment?
Rachel: The homework assignment differs. For the homework assignment, the lead researcher for the Firm Z gets a bad flu and spends two weeks in bed. When he comes back to work, the firm realizes that it has fallen behind its competitors. Firm Z reasons:
With a 10% chance of being first, our research project has a positive NPV.
With an 8% chance of being first, our research project has a negative NPV.
Firm Z stops its research and pulls out of this market. In this case, the lead researcher’s illness has a slight effect on the chances of the other firms. The major effect comes when Firm Z ends it research efforts.