Question

Two firms dominate the cellular phone carrier industry. Each quarter their advertising executives must decide if their advertising budget wllbe Big (S10m) or Small (S1m). If one company chooses Big while the other chooses Small, the company that chose Big will steal a significant portion of the other company's market share. If the two companies choose identical budgets, then their respective market shares will remain unchanged. The following payoff matrix represents the two companies' problem: ATT Verizon Small Bi 80M 95M Small 80M 20M 20M 45M Big 95M 45M a. What is the Nash equilibrium? (page 398 in your textbook) b Is there an outcome that both companies would prefer to the Nash Equilibrium? C. Why can't the two companies attain this preferred outcome? Keep your answer brief d. What sorts of things can affect the outcome of the game? In what way? Be specific.

Answer 1

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