154
The hostage model.
Party A
Party B
Use non-specialized technology
Hold up
Don’t hold up
(½π, ½π)
(-h, αh-C)
wIf αh-C > 0.1π, A will choose the more efficient specialized technology.
Party A
Don’t give in
Give in
(0.9π, 0.1π)
wEven if α = 0, B may have no incentive to hold up A.  Hostage as a signal.
Use specialized technology
(¼π, ¼π)