Coca-Cola and Pepsi both advertise aggressively, but would they be better off if they didn't? Their commercials are usually not designed to convey new information about their products. Instead, they are designed to capture each other's customers. The payoff matrix illustrates the following information: >If neither firm advertises, Coca-Cola and Pepsi both earn profits of $750 million per year. > If both firms advertise, Coca-Cola and Pepsi both earn profits of $500 million per year. > If Coca-Cola advertises and Pepsi doesn't, Coca-Cola earns profits of $900 million and Pepsi earns profits of $400 million. > If Pepsi advertises and Coca-Cola doesn't, Pepsi earns profits of $900 million and Coca-Cola earns profits of $400 million. If Coca-Cola wants to maximize profit, they will advertise If Pepsi wants to maximize profit, they will advertise Is there a Nash equilibrium? ○ A. There is only a Nash equilibrium in which both firms advertise. OB. There is a Nash equilibrium in which both firms advertise and one in which both firms do not advertise. ○ C. There is only a Nash equilibrium in which both firms do not advertise. OD. There is a Nash equilibrium in which Pepsi advertises and Coca-Cola does not advertise. Pepsi Advertisting No advertisting $500 $500 Coca-Cola $400 $900 $900 $750 $400 $750
Coca-Cola and Pepsi both advertise aggressively, but would they be better off if they didn't? Their commercials are usually not designed to convey new information about their products. Instead, they are designed to capture each other's customers. The payoff matrix illustrates the following information: >If neither firm advertises, Coca-Cola and Pepsi both earn profits of $750 million per year. > If both firms advertise, Coca-Cola and Pepsi both earn profits of $500 million per year. > If Coca-Cola advertises and Pepsi doesn't, Coca-Cola earns profits of $900 million and Pepsi earns profits of $400 million. > If Pepsi advertises and Coca-Cola doesn't, Pepsi earns profits of $900 million and Coca-Cola earns profits of $400 million. If Coca-Cola wants to maximize profit, they will advertise If Pepsi wants to maximize profit, they will advertise Is there a Nash equilibrium? ○ A. There is only a Nash equilibrium in which both firms advertise. OB. There is a Nash equilibrium in which both firms advertise and one in which both firms do not advertise. ○ C. There is only a Nash equilibrium in which both firms do not advertise. OD. There is a Nash equilibrium in which Pepsi advertises and Coca-Cola does not advertise. Pepsi Advertisting No advertisting $500 $500 Coca-Cola $400 $900 $900 $750 $400 $750
Chapter15: Oligopoly And Strategic Behavior
Section: Chapter Questions
Problem 14P
Related questions
Question
I selected answer "B", which was surprisingly incorrect. What say you? What would you pick as the correct choice?
Transcribed Image Text:Coca-Cola and Pepsi both advertise aggressively, but would they be better off if they didn't? Their commercials are
usually not designed to convey new information about their products. Instead, they are designed to capture each other's
customers. The payoff matrix illustrates the following information:
>If neither firm advertises, Coca-Cola and Pepsi both earn profits of $750 million per year.
> If both firms advertise, Coca-Cola and Pepsi both earn profits of $500 million per year.
> If Coca-Cola advertises and Pepsi doesn't, Coca-Cola earns profits of $900 million and Pepsi earns profits of $400
million.
> If Pepsi advertises and Coca-Cola doesn't, Pepsi earns profits of $900 million and Coca-Cola earns profits of $400
million.
If Coca-Cola wants to maximize profit, they will advertise
If Pepsi wants to maximize profit, they will advertise
Is there a Nash equilibrium?
○ A. There is only a Nash equilibrium in which both firms advertise.
OB. There is a Nash equilibrium in which both firms advertise and one in which both firms do not advertise.
○ C. There is only a Nash equilibrium in which both firms do not advertise.
OD. There is a Nash equilibrium in which Pepsi advertises and Coca-Cola does not advertise.
Pepsi
Advertisting
No advertisting
$500
$500
Coca-Cola
$400
$900
$900
$750
$400
$750
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