wo firms share a market. If neither firm advertises, each firm makes $ 5 5 million. If
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Question:
wo firms share a market. If neither firm advertises, each firm makes $ million. If a firm chooses to advertise, it will capture $
million from its competitor provided that the competitor does not advertise. Advertising has a cost of $ million. Assume the firms
only know whether their competitor has chosen to advertise or not after they have chosen to advertise or not. Assume both firms
know their own payoffs and the payoffs of their competitor in each possible outcome.
Write down the action set of each firm.
Characterize this environment as a Normal Form Game NFG
Is this a simultaneous or a sequential game?
Is this a zerosum game?
Write down the set of pure strategy profiles.
Is this game symmetrical?
What is the maximin strategy of firm Why would firm play a maximin strategy? Is it sensical to think in the worst
case scenario?
Related Book For
Macroeconomics Principles Applications And Tools
ISBN: 9780134089034
7th Edition
Authors: Arthur O Sullivan, Steven M. Sheffrin, Stephen J. Perez
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