Oligopoly 4. Advertising Two firms compete in the breakfast cereal industry prod

Question

Oligopoly 4. Advertising Two firms compete in the breakfast cereal industry producing Wheat Krinkles cereal (Firm A) an Rice Krinkles cereal (Firm B). Each manufacturer must decide whether to promote its product with a large or small advertising budget. The potential profits for these firms are as follows (in millions of dollars): Firm A's Actions Small Advertising Large Advertising Budget Budget Small Advertising S30M $50M Firm B's Actions Budget S50M $100M Large Advertising $140M $150M Budget S20M S150M a) Do both firms have dominant strategies? b) What will be the most probable outcome of the game?

Explanation / Answer

Here large advertising of both the firms have dominant strategies because small advertising budget (50,50)<(150,150) & (20,140)<(150,150).

Therefore, large advertising budget of both the firms have dominant stratagies.

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