Question

2.) You are the manager of Big Cats Real Estate which specializes in construction of luxury apartment buildings. Your marketing team informs you that the company has to choose an advertising strategy in order to compete with your largest competitor, C. Baskin Builders. You are given the following information:

If C. Baskin Builders runs an "aggressive" ad strategy and if you choose to run an "aggressive" strategy in response, your revenues will increase by $2,800,000. If you choose to run a "passive" ad strategy in response your revenues will increase by $1,900,000.

If C. Baskin Builders chooses to run a "passive" ad strategy instead, your company would see revenues increase by $3,700,000 if you ran an "aggressive" ad strategy. Your revenues would increase by $2,900,000 if you ran a "passive" strategy in response.

Which of the following is true?

A.) Big Cats Real Estate should choose a mixed strategy in advertising to maximize payoffs.

B.) Big Cats Real Estate has a dominant strategy in "aggressive" advertising.

C.) Not enough information to answer this question.

D.) Big Cats Real Estate has a dominant strategy in "passive" advertising.

Answer 1

The right answer is B) Big Cats Real Estate has a dominant strategy in "aggressive" advertising. The reason is that for the competitor's aggressive as well as passive advertising, Big Cats' outcome is higher with following an aggressive advertising, hence they can go for aggressive advertising.