Verizon and AT&T are considering whether or not to advertise during the Super Bo

Question

Verizon and AT&T are considering whether or not to advertise during the Super Bowl. If neither company advertises, the two companies split the market and earn $55 million each. If they both advertise, they again split the market, but profits are lower by $15 million since each company must bear the cost of advertising. Yet if one company advertises while the other does not, the one that advertises attracts more customers. In this case, the company that advertises earns $70 million while the company that does not advertise earns only $25 million. What is the Nash Equilibrium of the game?

AT&T; Do not advertise Advertise Do not advertise $55 million $70 million Verizon $55 million $25 million Advertise $25 millior $40 million $70 million $40 million

Explanation / Answer

nash equilibrium is both will not advertise because whatever the decision of other firm, firm decision is to not to advertise pays him more.

Verizon(firm 1) advertise not advertise AT&T(firm 2) advertise 15,15 25, 70 not advertise 70,25 55, 55

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