Coca-Cola and Pepsi both advertise aggressively, but would they be better off if they didn't? Their commercials
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• If neither firm advertises, Coca-Cola and Pepsi each earn a profit of $750 million per year.
• If both firms advertise, Coca-Cola and Pepsi each earn a profit of $500 million per year.
• If Coca-Cola advertises and Pepsi doesn't, Coca-Cola earns a profit of $900 million, and Pepsi earns a profit of $400 million.
• If Pepsi advertises and Coca-Cola doesn't, Pepsi earns a profit of $900 million, and Coca-Cola earns a profit of $400 million.
a. If Coca-Cola wants to maximize profit, will it advertise? Briefly explain.
b. If Pepsi wants to maximize profit, will it advertise? Briefly explain.
c. Is there a Nash equilibrium to this advertising game? If so, what is it?
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