The cigarette industry is an oligopoly. Cigarette companies used to face the game of "should we advertise or should we not." When firms advertise, it adds to the cost. If one firm advertises and its competitors do not, the firm that advertises can gain popularity and market share by capturing some of the non-advertisers market. If all companies advertise, all incur the cost, but no one gains market share. Pretend the game below depicts the situation facing cigarette manufacturers. The values represent the potential profit for Marlboro and Salem. Don't Salem's Decision Advertise Marlboro' s Decision Advertise Don't M: $4b M: $2b Advertise S: $4b S: $5b M: $5b M: $3b Advertise S: $2b S: $3b a) Given the game's rules, what is Marlboro's dominant strategy? b) Given the game's rules, what is Salem's dominant strategy? c) What is the expected payoff for each? d) What is the NASH EQUILIBRIUM? (Strategy Marlboro, Strategy Salem) e) (Explaining why this is an equilibrium) Given that they end up at the Nash equilibrium, would either firm INDEPENDENTLY want to change their strategy? f) If they could work together, what strategy would they pick? What would their expected payoff be? In 1971, Congress banned TV advertising. The industry did not oppose this ban, even though they heavily advertised. g) Why did the firms not oppose the advertising ban? h) What do you think happened to profit after the ban?