Table 17-29 Suppose That Two Firms, Wild Willy's Wonderdrink (Firm W) and W)

question 197

Multiple Choice

Table 17-29
Suppose that two firms, Wild Willy's Wonderdrink (Firm W) and Hyper Hank's Hydration (Firm H) , comprise the market for energy drinks. Each firm determines that it could lower its costs and increase its profits if both firms reduced their advertising budgets. But for the plan to work, each firm must agree to refrain from advertising. Each firm believes that advertising works by increasing the demand for the firm's energy drinks, but each firm also believes that if neither firm advertises, the cost savings will outweigh the lost sales. The table below lists each firm's individual profits:
Firm W
Breaks agreement Maintains agreement
and advertises and does not advertise
-Refer to Table 17-29. Which of the following statements does not correctly characterize the outcome of this game?

• A)There is a Nash equilibrium.
• B)Only one firm has a dominant strategy.
• C)The game is an example of the Prisoners' Dilemma.
• D)Both firms collectively would earn the highest joint profits by maintaining the agreement not to advertise.

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Definitions:

Money Center Bank

Large financial institutions that rely less on traditional bank deposits for funding and more on wholesale funding markets.

Retail Bank

A bank that provides financial services to individual consumers rather than businesses, offering deposits, loans, and other services.

Commercial Bank

A commercial bank is a financial institution that offers various services, such as accepting deposits, providing business loans, and offering basic investment products to individuals and businesses.