Question

only two firms in the industry of eanera , A long time ago, Kodak and Fuji the identical cos t structure were thinking of advertising their product at an exhausting rate, a mild not advertising at all. Assume that currently they share a profit of $54 million each S60 million and by a mild rate $45 reaches $105 if both advertise By advertising at an exhausting rate results in a cost of million for each firm. On the other hand revenue for each firm mildly and $114 i f they advertise exhaustively provided that the other firm doesn't advertise When both firms advertise mildly they get a revenue of $93, and $60 when they $69 provided that the advertise exhaustively. In case that one advertises mildly it will get other will advertise exhaustively. In the case that one advertises exhaustively it will get $96 provided that the other will advertise mildly. When a firm does not advertise at all it will get S45 if the other advertises mildly and $27 when the other advertises exhaustively. (a) Construct the payoff matrix and find whether a dominant strategy exists for each firm Mark: 1.0J (b) Find the Nash equilibrium of the game. [Mark: 0.5] (c) Suppose that Kodak moves first and decides about its advertising plan a month earlier so as to pre-empt Fuji. Kodak approaches a large advertising company and commits to an exhaustive strategy by signing a contract with the advertising company and at the same time making a public announcement of the event. Is this move beneficial to Kodak? Is this a credible strategy? Show in a game tree the Subgame Perfect Nash Equilibrium and comment on your finding. [Mark: 1.0 (d) Despite Kodak's announcement, Fuji threatens also through a public announcement that it will follow the exhaustive advertising of Kodak. Is this threat by Fuji credible? [Mark 0.5 uuuuu į (, .utuition 10% of (1 n n ronriate (1 rgulllents 40%, correct use

Answer 1