Two firms are introducing an improved version of their toothpastes. They must decide whether or not to advertise their products. The table above gives the payoff matrix in terms of the economic profits they expect in each case
The payoffs are in terms of millions of dollars. a. What is the Nash equilibrium for the game? b. If they could cooperate, what strategy would they prefer? What would be the payoff?
a. The Nash equilibrium has each firm advertising and hence each firm receiving $100 million in economic profit because both decided to advertise.
b. If they could cooperate, they would both choose not to advertise. In this case, each would earn $140 million in economic profit.
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