On a duopolistic market, two tobacco firms are considering separately whether or not to engage in a marketing campaign. The market share gained from advertising will depend on whether the other competitor also advertises. The payoffs in millions of pounds for the firms are displayed in the following payoffs table where the first figure in the bracket denotes the payoff to A, and the second figure the payoff to B. Firm B\Firm A Firm A advertises Firm A no advertising Firm B advertises (60,75) (20,150) Firm B no advertising (120, 25) (100,120) a. Is there a dominant strategy? If so, what is the dominant strategy? Explain the meaning of a dominant strategy. b. Is there a Nash equilibrium? If so, what is it? Explain briefly what this implies. Explain the concept of Nash equilibrium.

On a duopolistic market, two tobacco firms are considering separately whether or not to engage in a marketing campaign. The market share gained from advertising will depend on whether the other competitor also advertises. The payoffs in millions of pounds for the firms are displayed in the following payoffs table where the first figure in the bracket denotes the payoff to A, and the second figure the payoff to B. Firm B\Firm A Firm A advertises Firm A no advertising Firm B advertises (60,75) (20,150) Firm B no advertising (120, 25) (100,120) a. Is there a dominant strategy? If so, what is the dominant strategy? Explain the meaning of a dominant strategy. b. Is there a Nash equilibrium? If so, what is it? Explain briefly what this implies. Explain the concept of Nash equilibrium.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter15: Strategic Games

Section: Chapter Questions

Problem 3MC

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