In 2009 and 2010, PepsiCo’s executives slashed the advertising for their namesake soda, Pepsi-Cola, by about $100 million. Suppose in our South American context that TragoCo’s managers do the same—they cut their advertising by $100 million.

The payoff matrix shows the game that TragoCo’s managers are playing with Boca-Cola’s managers. The numbers in the payoff matrix are the firms’ profits. How did TragoCo’s managers hope that Boca-Cola’s managers would respond? What response did they fear? If you were a manager at Boca-Cola, what decision would you make?

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Maintain Advertising Maintain TragoCo Cut Advertising Advertising $5.7 billion $5.4 billion $6.8 billion $9.8 billion Boca-Cola Cut $7.2 billion $6.8 billion Advertising $6.4 billion $7.2 billion