Question
(a) Consider two retailers: A and B. They are discussing about cooperating on their next advertising campaign. If they cooperate and do not advertise, they
(a) Consider two retailers: A and B. They are discussing about cooperating on their next advertising campaign. If they cooperate and do not advertise, they will each get an increase in profit of Rs 100 million. If they do not cooperate and advertise, they will each get an increase in profit of Rs 20 million. If A advertises and B does not, A's profit will increase by Rs 200 million, and B will suffer a loss of Rs 20 million. Alternatively, if B advertises and A does not, B's profit will increase by Rs 100 million, and A will suffer a loss of Rs 20 million. (i) Set up the payoff matrix and find the Nash equilibrium of this game. [5 marks] (ii) Discuss whether A and B would cooperate. Explain fully your reasoning. [5 marks]
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