Is the equilibrium outcome a good one for anybody

Reference no: EM131335597

In the 1960s, tobacco producers engaged in fierce battles for market share. The major weapon in that war was advertising?-?advertising that was designed not to attract new smokers, but to lure smokers away from competing brands. Consider the following scenario: There are two tobacco sellers, Phillip and R. J., each of whom can choose to advertise on TV (at a cost of $20 million) or not. There are $100 million of pre-advertising profits available to the two firms. If they both adopt the same budget, they will split the market evenly. If one chooses a high budget while the other chooses low, the high-budget firm will steal half the other's customers and capture $75 million of pre-advertising profit; the other will earn $25 million. The firms' net profits (after advertising expenses are considered) are illustrated in the payoff matrix below:

a. Verify that the payoffs in the table reflect the story told above.

b. What is the Nash equilibrium in this game? Is the equilibrium outcome a good one for anybody?

c. Suppose that Phillip and R. J. promise one another that they will not advertise. Is such a promise credible? Explain.

d. In 1971 the federal government banned cigarette advertising on TV. Initially, tobacco companies protested vehemently. Referring to the game table above, discuss whether Big Tobacco's protests were genuine

Reference no: EM131335597

Questions Cloud

Inserting math symbols handout for guidance with formatting : For the quadratic formula problem, be sure that you use readable notation while you are working the computational steps. Refer to the Inserting Math Symbols handout for guidance with formatting.

Prepare any closing entries necessary at year-end : Prepare any closing entries necessary at year-end. Prepare a Statement of Revenues, Expenditure, and Changes in Fund Balance for the courthouse annex capital project fund.

What clinical features are critical to your diagnosis : Answer the following questions in your own words. What is your diagnosis here? What clinical features are critical to your diagnosis? What further actions must be taken

Write the replies for the given post : The theory I chose to identify with is Person-Centered Theory. When Carl Rogers developed the person-centered approach to therapy, his aim was to focus on the client and developing an encouraging, non judgemental and positive environment for the c..

Is the equilibrium outcome a good one for anybody : In 1971 the federal government banned cigarette advertising on TV. Initially, tobacco companies protested vehemently. Referring to the game table above, discuss whether Big Tobacco's protests were genuine

Calculate the return on investment : Calculate the return on investment for 1,900 shares of a mutual fund purchased with an offer price of $15.26 if the shares were sold with a NAV of $18.35. The shares paid a dividend of $0.88per share during ownership.

How scientists learn about past global temperatures : Write a 525- to 700-word response including: How scientists learn about past global temperatures and climates. The greenhouse effect

What did this place tell you about cultural diversity : What did this place tell you about cultural diversity? Consider all of the aspects of the exhibition and relate them to the context of the issues we have discussed and studied in our course.

Unique application of probability : There are several real life applications of probability. Your task this week is to research and share with the class in detail, an application of probability that you find interesting. Each student must post a unique application of probability. Th..

User Account

All Pages