Question

6. There are 2 firms in an oligopoly market: firm ABC and firm XYZ. They simultaneously decide whether to spend on advertising. If both firms spend on advertising, the profit of each will be $80. If both firms do not spend on advertising, the profit of each will be $100. If only one firm spends on advertising, the firm with advertising carns $150 and the firm without advertising carns $30. (a) Complete the payoff matrix below. Advertising Advertising ABC: XYZ: ABC: XYZ: XYZ No advertising ABC: XYZ: ABC: XYZ: ABC No advertising (b) Is there dominant strategy for firm ABC? (c) Is there dominant strategy for firm XYZ? (d) Find all the possible equilibria of this problem.

Answer 1

Here, Advertising a) ABC. Advertising XYZ - $80, $80 $30, 150 No advertising $ 150, 30 no Advertising $100,$100 1 b) Advertising is a dominant strategy for from ABC c) Atis similarly Adwerksing as a dominant stetigy . for from xyz. d) ( Advertising Advertising) as a Nash equation equalebolum - Where there is no incentive for any player to deriate,