Two firms, Lafarge Cement and Dangote Cement dominate Zambia's cement industry. The larger firm, Lafarge Cement, is considering launching an expensive advertising campaign which may be matched by its main rival, Dangote Cement. If neither firm makes the launch, the revenue for Lafarge Cement is K7, 000 per week and the revenue for Dangote Cement is K8, 000 per week. If both make the launch, they gain customers. Weekly revenues are K10, 000 and K14, 000 for Lafarge and Dangote Cement, respectively. If Lafarge Cement makes the offer and Dangote Cement does not, their weekly revenues are K18, 000 and K6, 000, respectively as Dangote Cement loses some customers to Lafarge Cement. On the other hand, if Lafarge Cement does not make the launch and Dangote Cement does, their weekly revenues are K4, 000 and K20, 000, respectively as Lafarge Cement loses some customers to Dangote Cement.

a) Is this a cooperative or non-cooperative game? Justify your answer. [5 MARKS]

b) Analyse the game using both the extensive and normal form. [5 MARKS]

c) In your analysis, is there a Nash-equilibrium? [2 MARKS]

d) What are the players' equilibrium strategies? And payoffs in equilibrium?

[8 MARKS]