Question 5

Adidas and Nike spend billions of dollars each year endorsing athletes, both star athletes and young 'unknown' athletes who may someday become stars. Suppose that each firm is contemplating targeting a younger group of athletes with the hope of locking the youngsters into a contract before they become stars.The potential payoffs, in billions of dollars per year, to "locking" and "waiting" are given below:

(Nike's payoff is listed first; Adidas' payoff is listed second)

	LOCK EARLY	WAIT
LOCK EARLY	$8 , $8	$19 , $5
WAIT	$5 , $19	$12 , $12

Part 1: Identify the Nash Equilibrium

Part 2: Why is it so difficult to get out of the Nash Equilibrium in the Prisoners' Dilemma?What strategies are most effective in getting to a more desirable equilibrium?

Part 3: Suppose that the NCAA begins enforcing regulations that prohibit endorsement contracts for very young athletes. How would this affect the Nash Equilibrium?