Q4. Ford and Lexus are competing in the market for SUV's. We assume there are no other rivals in the SUV market. The companies are planning to introduce a new model in this summer. They should decide whether to invest lots of money in advertisements or not. The profits of the two firms depend on the joint choice of both firms. The payoff matrix for the firms' interaction of strategies is shown below.

a) Compute Nash Equilibrium of this game.

Dose either firm have a dominant strategy?

b) What would happen if the firms agreed ahead of time to advertise normally? Would either firm violate the agreement?

c) Under what conditions might the firms be able to cooperate and have normal advertisement? Explain.

Lexus Aggressive Normal Advertisement Advertisement Aggressive Advertisement (7. 7) (12,5) Ford Normal Advertisement (5.12) (10,10)