4. (30 Marks) Consider a game in which two firms choose eitherfull scale (F) or niche (N) advertising campaigns. The payoffs fromthe possible strategy combinations are as follows:

Where x represents costs specific to firm 2 for undertaking afull scale advertising campaign.

A) Suppose the cost of the full campaign to firm 2 is x=250.Find the Pure Strategy Nash Equilibrium to the game. (10 marks)

B) For what values of x is niche a dominant strategy for firm 2?(10 marks)

C) For any value of x you found in B), determine the PureStrategy Nash Equilibrium. Is the equilibrium unique? Why or whynot? (5 marks)

D) In general, if firm 1 could increase firm 2?s full scaleadvertising costs (x) would it have an incentive to do so? Why orwhy not? (5 marks)

Firm 2 F N Firm 1 F 200, 300-X 500, 100 N 300, 500-x 200, 200

Transcribed Image Text:

Firm 1 F N Firm 2 F 200, 300-x 300, 500-x 500, 100 200, 200 N Firm 1 F N Firm 2 F 200, 300-x 300, 500-x 500, 100 200, 200 N

Answer rating: 100% (QA)

A To find the Pure Strategy Nash Equilibrium PSNE of the game we need to analyze the best response o... View the full answer