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Hi there could you please help me understand the process of how to solve the the parts (a, b, c) of this question? Thank you
Hi there could you please help me understand the process of how to solve the the parts (a, b, c) of this question? Thank you so much.
Question 1 (25 points) For this question, assume the online retailing market is dominated by two rms. Let's name them Firms Alpha and Zeta. These rms sell a similar line of products and have very similar prices. However, one key strategic tool for each of them is advertising. Assume the two rms each have just two possible advertising strategies: spend a great deal of money on their advertising (High) or spend a modest amount on advertising (Low). If they both choose to have modest (Low) advertising budgets, they each have profits of $1,000. If they both have High advertising budgets, they incur greater costs. S_o the two companies earn just $500 each in prots. However, if Alpha has a Low advertising campaign and Zeta has a 119; advertising budget, Alpha has prots of $450 while Zeta has prots of $1,200. If Zeta has a Low advertising budget while Alpha has a g; advertising budget, Zeta has prots of $650 while Alpha has prots of $1,100. This is a single-play, non-repeated game. a) b) Construct a clear payoff matrix to describe this simple non-cooperative game. Fill the cells with the correct payoffs. Please put Alpha on top and Zeta on the left side of your payoff matrix. {5 points) Is there a dominant strategy equilibrium? Explain. (5 points) Is therelare there Nash equilibriumlequilibria? Explain. (5 points) If the two rms were owned by a single owner, and acted as a monopoly in this market, what advertising budget decisions would Alpha and Zeta make? What would be the monopoly prot (sum of the individual rms' prots) in this setting? Explain. (5 points) If Alpha could credibly threaten to run a H_igg advertising budget, what is the maximum Alpha would be willing to pay Zeta in order to buy them out of the market and operate the two rms as a monopoly? What is the minimum that Zeta would be willing to accept to be bought out in this situation? Explain. Please recall that this is a single-play, non- repeated game. (5 points)Step by Step Solution
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