Question
Consider the decisions facing two cigarette companies, Benson & Hedges and Philip Morris. The following table shows how the profits of the two companies depends
Consider the decisions facing two cigarette companies, Benson & Hedges and Philip Morris. The following table shows how the profits of the two companies depends on their actions.
| Benson & Hedges' decision | |||
| Advertise | Don't advertise | ||
| Philip Morris' Decision. | Advertise | Benson & Hedges get $3b profit Philip Morris get $3b profit | Benson & Hedges get $2b profit Philip Morris get $5b profit |
| Don't advertise | Benson & Hedges get $5b profit Philip Morris get $2b profit | Benson & Hedges get $4b profit Philip Morris get $4b profit |
a) What is the dominant strategy for Benson & Hedges? For Philip Morris? Explain.
b) Define Nash Equilibrium. What is the Nash Equilibrium for the decision?
c) Define prisoner's dilemma. Is this game a prisoner's dilemma? Explain.
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Accounting, The Financial Chapters
Authors: Tracie Miller Nobles
12th Edition
013449041X, 9780134490410
