wo firms share a market. If neither firm advertises, each firm makes $5$5$ million. If a firm chooses to advertise, it will capture $3$3$

million from its competitor provided that the competitor does not advertise. Advertising has a cost of $2$2$ 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.

1.$1.$ Write down the action set of each firm.

2.$2.$ Characterize this environment as a Normal Form Game ($($NFG).$).$

3.$3.$ Is this a simultaneous or a sequential game?

4.$4.$ Is this a zero−$-$sum game?

5.$5.$ Write down the set of ($($pure)$)$ strategy profiles.

6.$6.$ Is this game symmetrical?

7.$7.$ What is the maximin strategy of firm 1?$1?$ Why would firm 1$1$ play a maximin strategy? Is it sensical to think in the worst−$-$

case scenario?

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1 The action set of each firm consists of two options to advertise or not to advertise 2 The Normal ... View the full answer