Table 9-8 Firm a (Alistair's) and Firm B (Baine's)

question 100

Multiple Choice

Table 9-8 Firm A (Alistair's) and Firm B (Baine's) are the only firms selling luggage in the upscale city of Adelaide. Each firm must decide on whether to increase its advertising spending to compete for customers. If one firm increases its advertising budget but the other does not, then the firm with the higher advertising budget will increase its profit. Table 9-8 shows the payoff matrix for this advertising game.
-Refer to Table 9-8.How are the firms in this advertising game caught in a prisoner's dilemma?

• A) They are not in a prisoner's dilemma because there is one clear strategy for each.
• B) They would be more profitable if they refrained from advertising, but each fears that if it does not advertise, it will lose customers.
• C) Since each firm is uncertain about the other's behaviour, each will adopt a wait-and-see attitude which results in no increase in market share and no new customers.
• D) Only the first mover is caught in a prisoner's dilemma because the second has a chance to observe and respond.

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Definitions:

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