Suppose that Boca-Cola and TragoCo are engaged in an advertising game. If the game is played only once, the Nash equilibrium is for both firms to maintain their advertising. But in reality, Boca-Cola and TragoCo advertise year after year, so they actually repeatedly play their advertising game. If TragoCo’s managers cut their advertising budget, what strategy might they be pursuing? As a Boca-Cola manager, what choices do you face? Suppose that Boca-Cola’s managers maintain their advertising. Explain why they might make this choice.

Transcribed Image Text:

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