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##### [solution] » 1. a. For the following simultaneous advertising game, please

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1.

a. 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

\$15 Million \$30 Million \$65 million \$50 million

\$ -5 Million No Ads \$20 Million \$5 Million

\$10 Million b. 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 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 Does not advertise (1000, 0) Entrant

Enters (400,300) Incumbent

Does not enter (500, 0) Advertise

Entrant

Enters (200, -100) C. Convert this sequential game into a simultaneous game

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 dominant strategies for both players and the Nash equilibrium if

any.

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This question was answered on: Feb 21, 2020

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