12. To advertise or not to advertise Suppose that Expresso and Beantown are the only two firms that sell coffee. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises: For example, the upper right cell shows that if Expresso advertises and Beantown doesn't advertise, Expresso will make a profit of $15 million, and Beantown will make a profit of $2 million. Assume this is a simultaneous game and that Expresso and Beantown are both profit-maximizing firms. If Expresso decides to advertise, it will earn a profit of advertise. million if Beantown advertises and a profit of million if Beantown does not If Expresso decides not to advertise, it will eam a profit of not advertise. million if Beantown advertises and a profit of million if Beantown does If Beantown advertises, Expresso makes a higher profit if it chooses If Beantown doesn't advertise, Expresso makes a higher profit if it chooses Suppose that both firms start off not advertising. If the firms act independently, what strategies will they end up choosing? Both firms will choose to tidvertise: Expresso will choose to advertise and Beantown will choose not to advertise. Expresse wifl choose not to ndvertiso and teantown witt choose to advertise. Both firms will choose not to advertise. For example, the upper right cell shows that if Expresso advertises and Beantown doesn't advertise, Expresso will make a pront or Beantown will make a profit of $2 million. Assume this is a simultaneous game and that Expresso and Beantown are both profit-maximizir If Expresso decides to advertise, it will earn a profit of million if Beantown advertises and a profit of million if Beantow advertise. If Expresso decides not to advertise, it will earn a profit of million if Beantown advertises and a profit of million if Bear not advertise. If Beantown advertises, Expresso makes a higher profit if it chooses If Beantown doesn't advertise, Expresso makes a higher profit if it chooses Suppose that both firms start off not advertising. If the firms act independently, what strategies will they end up choosing? Both firms will choose to advertise. Expresso will choose to advertise and Beantown will choose not to advertise. Expresso will choose not to advertise and Beantown will choose to advertise. Both firms will choose not to advertise. Again, suppose that both firms start off not advertising. If the firms decide to collude, what strategies will they end up choosing? Both firms will choose to advertise. Expresso will choose to advertise and Beantown will choose not to advertise. Both firms will choose not to advertise. Expresso will choose not to advertise and Beantown will choose to advertise