Scenario: Company a and Company B Are Considering Spending a Certain

question 58

Multiple Choice

Scenario: Company A and Company B are considering spending a certain sum of money to advertise their new range of products. If Company A chooses to advertise while Company B does not, Company A's annual sales will increase by $5 million, while Company B's sales will remain unchanged. If Company B chooses to advertise while Company A does not, Company B's annual sales will increase by $5 million, while Company A will not experience any change in its sales. If both the companies decide to advertise, their sales will increase sales by $2 million each, and if neither of them spends on advertisement, their sales will remain unchanged.
-Refer to the scenario above.Suppose the cost of advertising in this industry is very high and each company will incur a cost of $3 million annually if they choose to advertise.Which of the following is true in this case?

• A) Company A's best response is to advertise if Company B advertises.
• B) Company B's best response is to advertise irrespective of what Company A does.
• C) Company A's dominant strategy is to advertise.
• D) This game does not have a dominant strategy equilibrium.

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Definitions:

Variety

The range and diversity of products or services offered by a business or available in a market.

Advertising Effectiveness Studies

A type of research that measures how well an advertising campaign meets marketing objectives.

Marketing Objectives

Marketing objectives are goals set by a business when promoting its products or services to potential consumers that should be achieved within a given timeframe.

Increasing Market Share

The strategy or outcome of a company growing its proportion of total sales within a particular market compared to competitors, indicating competitiveness and growth.