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For the following simultaneous advertising game , please
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    1. For the following simultaneous advertising game, please determine if either firm has a dominant strategy. The payoffs for NIKE are in the lower left comer of each cell, and the payoffs for ADIDAS are in the upper right corner of each cell. Then, please determine if the game has one or more Nash equilibria and state these possible outcomes.      

ADIDAS

          Ads                                        No Ads

    NIKE

 Ads

$15 Million

$65 million

$30 Million

$50 million

 No Ads

$ -5  Million

$20 Million

$5 Million

$10 Million

    1. For this sequential entry game, the incumbent firm can make an advertising expenditure (i.e., sunk cost) to potentially deter entry. First, please determine the entrant?s optimal decision if the incumbent advertises and if the incumbent does not advertise. Recall that the number in the (x, y) is the incumbent?s profit, and the second number is the entrant?s profit. Second, please determine the incumbent?s optimal decision (Advertise or do not advertise). Third, please determine the optimal outcome from the game if the sequence of decisions is reversed (i.e., the entrant moves first). Finally, what is the incumbent?s first-mover advantage?

                                                                                                       Does not enter         (1000, 0)

Entrant


                                            Does not advertise                                                                                                    

                                                                                                                                       Enters                       (400,300)

               Incumbent

                                                                                                       Does not enter            (500, 0)

Entrant


                        Advertise                                                                                                     

                                                                                                   

                                                                                                       Enters                        (200, -100)

C.  Convert this sequential game into a simultaneous game

First, please determine the entrant?s optimal decision if the incumbent advertises and if the incumbent does not advertise. Recall that the number in the (x, y) is the incumbent?s profit, and the second number is the entrant?s profit. Second, please determine the incumbent?s optimal decision (Advertise or do not advertise). Third,

Determine the dominant strategies for both players and the Nash equilibrium if any.

 







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