Suppose That Each of the Only Two Firms in an Industry

question 211

Multiple Choice

Suppose that each of the only two firms in an industry has the independent choice of advertising its product or not advertising.If neither advertises, each gets $10 million in profit; if both advertise, their profits will be $5 million each; and if one advertises while the other does not, the advertiser gets profit of $15 million and the other gets profit of $2 million.According to game theory, the Nash equilibrium is:

• A)both may or may not advertise.
• B)one will advertise and the other will not.
• C)both will advertise.
• D)neither will advertise.

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Definitions:

Discount Store

A retail store that sells products at prices lower than the typical market value, often by buying in bulk or selling overstock items.

Below Wholesale

Pricing that is lower than the standard wholesale price, often involving large quantities of goods being sold to retailers or other bulk buyers.

Markdown Timing

The strategic determination of when to reduce the selling price of goods, typically to clear outdated or excess inventory.

Valuable Selling Space

Locations or areas within a retail environment considered most effective for displaying products to attract customers and encourage purchases.