Chapter 8.5, Problem 32MS

Selling sweets. Two snack cake companies, Snacky Cakes and Little Eddie, compete for the same consumers. If both spend the same amount on advertising, the effect is to cancel each other’s message and there is no change in their sales. Yet the extra spending reduces profits (payoffs). Each would like to spend less on advertising, but if one reduces its budget and the other doesn’t, then the latter company would see increased sales over and above its additional spending on advertising. Fill in the table below to show a poss ible payoff matrix from the point of view of Little Eddie snack cakes.

Create a graph illustrating your scenario. Is there a Nash equilibrium point?