There are two firms (F1 and F2) in an industry that need to decide on their advertisement spending. Each firm has the option to advertise either excessively (E) or moderately (M). If both firms advertise excessively, F1 earns $1m and F2 earns $2m. If both firms advertise moderately, F1 earns $4m and F2 earns $5m. If F1 advertises excessively and F2 advertises moderately, F1 earns $5m and F2 earns $0. If F1 advertises moderately and F2 advertises excessively, F1 earns $0 and F2 earns $7m. The two firms decide on their advertisement simultaneously and independently to maximise their payoff.<\/p>
<\/p>
1. Represent this game in a bi-matrix form and analyse its Nash equilibria. (2p)<\/p>
2. Identify the optimal for the two firms collusive outcome and explain why it is not sustainable if the two firms compete only for one period (assume that firms cannot write explicit agreements that specify how much they advertise). (2p)<\/p>", "transcribed_text": "", "related_book": { "title": "Construction accounting and financial management", "isbn": "135017114, 978-0135017111", "edition": "2nd Edition", "authors": "Steven j. Peterson", "cover_image": "https:\/\/dsd5zvtm8ll6.cloudfront.net\/si.question.images\/book_images\/246.jpg", "uri": "\/textbooks\/construction-accounting-and-financial-management-2nd-edition-246", "see_more_uri": "" }, "free_related_book": { "isbn": "1472978218", "uri": "\/textbooks\/influence-how-social-media-influencers-are-shaping-our-digital-future-1st-edition-978-1472978219-184142", "name": "Influence How Social Media Influencers Are Shaping Our Digital Future", "edition": "1st Edition" }, "question_posted": "2024-06-20 23:09:18", "see_more_questions_link": "\/study-help\/questions\/business-finance-2024-September-21", "step_by_step_answer": "The Answer is in the image, click to view ...", "students_also_viewed": [ { "url": "\/alkylation-of-ammonia-is-sometimes-employed-in-industrial-processes-the", "description": "Alkylation of ammonia is sometimes employed in industrial processes; the resulting mixture of amines is separated by distillation. 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