1.9 In their study of cigarette advertising, Roberts and Samuelson (1988) found that the advertising of a particular brand affects overall market demand for cigarettes but does not affect the brand’s share of market sales. Suppose the demand for brand i is qi = a + b(Ai + Aj)0.5, where Ai is brand i’s advertising expenditure. Brand i’s profit function is πi = pi(a + b(Ai + Aj)0.5) - Ai.

a. Does brand B’s advertising expenditure affect A’s market share, qA/(qA + qB)?

b. In terms of a and

b, what are the Nash equilibrium advertising expenditures? How does an increase in b affect the equilibrium expenditures?

C