Consider Two Single-Malt Whiskey Distillers, Laphroaig and Knockando

question 22

Essay

Consider two single-malt whiskey distillers, Laphroaig and Knockando.If they advertise, they can both sell more whiskey and increase their revenue.However, the cost of advertising more than offsets the increased revenue so that each distiller ends up with a lower profit than if they do not advertise.On the other hand, if only one advertises, that distiller increases its market share and also its profit.
a.Construct a payoff matrix using the following hypothetical information: If neither distiller advertises: each earns a profit of $35 million per year.If both advertise: each earns a profit of $20 million per year.If one advertises and the other does not: the distiller who advertises earns a profit of $50 million and the distiller who does not advertise earns a profit of $9 million.
b.If the two distillers agree to coordinate their strategies, what is the outcome?

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Definitions:

Power Motives

The underlying psychological desires that drive individuals to seek control, influence, or authority over others.

Henry Murray

An American psychologist and one of the pioneers of personality psychology known for developing need theory and the Thematic Apperception Test (TAT).

Self-Determination Theory

A theory of motivation proposing that people are most motivated and function optimally when they feel that they have autonomy, competence, and relatedness.

Implicit Motives

The unconscious desires, preferences, and needs that influence behavior and decision-making.