Each cell shows the profit received by the firm. In Don\'t advertise, Don\'t adv

Question

Each cell shows the profit received by the firm. In Don't advertise, Don't advertise Runfast, R, receives $3 million in profit and Horizon, H, receives $3 million in profit Suppose instead that advertising attracts new customers into the market, as illustrated by the payoffs in the second payoff matrix below. Each cell phone provider's advertisements are different so the effectiveness of each cell phone's advertising campaign in attracting new customers to the market is different as well d) Do the firms have dominant strategies? If so, what are they? e) What is the Nash equilibrium? f) What is the Stackelberg equilibrium if Runfast makes their advertising decision first? g) What is the Stackelberg equilibrium if Horizon makes their advertising decision first? Runfast (R) Do Not Advertisel Adverti Horizon (H) Horizon Do Not Advertise R=0 H=6 R=5 H=5 Advertise

Explanation / Answer

d) yes only R have dominant strategy beacause he will choose to advertise as 6>2 and 5 > 0, irrespective of what H does . And firm H donot have any dominat strategy.

E) nash equlibrium is to for R to advertise and H to not advertise because 6 >2 and 6 > 5.

f) stackelberg equilibrium would be for R being first mover is to adverstise, while for H choose not to advertise as pay off of 6 > 5.

g) If H takes the advertising decision first then R will choose to advertise with the payoff of 5 >0.

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