Consider two cigarette manufactures considering whether to advertise. Where is the Nash equilibrium of this game?
Company B (payouts on right) |
|||
---|---|---|---|
Do Not Advertise | Advertise | ||
Company A (payouts on left) | Do Not Advertise | (50, 50) | (20, 60) |
Advertise | (60, 20) | (27, 27) |
Select one:
a. Neither company advertises
b. Both companies advertise
c. Company B doesn’t advertise, Company A advertises
d. Company A advertises, Company B doesn’t advertise
b. Both companies advertise
(Given that Company A do not advertise, Company B's best
response is to advertise (60)
Given that Company A advertise, Company B's best response is to
advertise (27)
Given that Company B do not advertise, Company A's best response is
to advertise (60)
Given that Company B advertise, Company A's best response is to
advertise (27)
So, best response of both companies occur simultaneously when they
choose to advertise. Thus, Nash equilibrium of the game is both
companies advertise or (27, 27)
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