Question

Please indicate the correct answer and explain why. Thank you! For the 4 fill in the blank(where advertise is) , the option is: Do or do not dont forget this part!! Indicate clearly which answer for which

Answer 1

		Coca-cola
		Do Advertise	Do not Advertise
Pepsi	Do Advertise	$100 m, $100 m	$500 m, -$100 m
	Do not Advertise	-$100 m, $500 m	$300 m, $300 m

When Pepsi chooses to Advertise , then Coca-cola has more pay off in choosing to Advertise i.e $100 m.

And When Pepsi chooses not to Advertise ,then also Coca-cola has more pay off in choosing to Advertise i.e $500 m.

Similarly, When Coca-cola chooses to Advertise ,then Pepsi has more pay off in choosing to Advertise i.e $100 m.

And when Coca-cola chooses not to Advertise ,then Pepsi has more pay off in choosing to Advertise i.e $500 m.

This implies that by seeing both firms best responses, Nash equilibrium is that both firm advertises. Hence, option(D) is correct.