In a One-Shot Game, If You Advertise and Your Rival

question 74

Essay

In a one-shot game, if you advertise and your rival advertises, you will each earn $5 million in profits.If neither of you advertise, your rival will make $4 million and you will make $2 million.If you advertise and your rival does not, you will make $10 million and your rival will make $3 million.If your rival advertises and you do not, you will make $1 million and your rival will make $3 million.
a.Write the above game in normal form.
b.Do you have a dominant strategy?
c.Does your rival have a dominant strategy?
d.What is the Nash equilibrium for the one-shot game?
e.How much would you be willing to bribe your rival not to advertise?

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Definitions:

Compensating Variation

An economic measure of the amount of money an individual would need to reach their initial level of utility after a change in prices, policy, or economic condition.

Fractional Numbers

Numbers that represent a part of a whole, typically written with a numerator and a denominator, such as 1/2 or 3/4.

Utility Function

A representation in economics of how a consumer prefences various goods or services, leading to choices that maximize their satisfaction or utility.

Compensating Variation

A measure of the amount of money needed to compensate an individual for a change in welfare or utility, keeping utility constant.