Consider two firms 1 and 2 engaging into the following one-shot game: if firm 1 advertises and firm 2 does not, firm 1 will make $20 million in profits and firm 2 will make $6 million. If firm 2 advertises and firm 1 does not, firm 1 will make $2 million and firm 2 will make $6 million. If firm 1 advertises and firm 2 advertises, each firm earns $10 million. If neither firm advertises, firm 2 will make $8 million and firm 1 will make $4 million.

(a) Write the payoff matrix for the above game.

(b) Does firm 1 have a dominant strategy?

(c) Does firm 2 have a dominant strategy?

(d) What is the Nash equilibrium for this one-shot game? Explain your answers.

Answer rating: 100% (QA)

Payoff Matrix and Analysis of the Advertising Game Payoff Matrix Firm 2 Doesnt Advertise Firm 2 Adve... View the full answer