(Table: Coke and Pepsi Advertising Game) Look at the Table

question 19

Multiple Choice

(Table: Coke and Pepsi Advertising Game) Look at the table Coke and Pepsi Advertising Game.The soft-drink industry is dominated by Coke and Pepsi, and each firm spends a lot of money on advertising.Suppose each firm is considering a costly television commercial during halftime of the Super Bowl.The table shows the payoff matrix of profits that each firm would receive from their advertising decision, given the advertising decision of their rival.Profits in each cell of the payoff matrix are given as (Coke, Pepsi) .If each firm makes the decision whether to advertise on the Super Bowl independently, what is the Nash equilibrium of this game?

• A)Both firms advertise during the Super Bowl.
• B)Neither firm advertises during the Super Bowl.
• C)Pepsi advertises, but Coke does not advertise during the Super Bowl.D.Coke advertises, but Pepsi does not advertise during the Super Bowl.

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Definitions:

Collusive Prices

Price levels that are set as a result of agreement among competitors in a market rather than through competition, which is often illegal.

Microsoft

A multinational technology company known for its software products, including the Windows operating system and the Office suite.

Internet Explorer

A discontinued web browser developed by Microsoft, once dominant but replaced by newer technologies.

Tacit Collusion

A situation where firms in an oligopoly indirectly coordinate actions without explicit agreement, typically leading to price setting or market sharing that benefits all involved parties.