The Managers of Alpha and Beta Must Make Repeated Advertising

question 18

Multiple Choice

The managers of Alpha and Beta must make repeated advertising decisions simultaneously at the beginning of every month.They choose either low or high levels of advertising expenditure.They both employ a discount rate of 2.5 percent per month. Beta expects punishment to last for two months after being caught i.e.,to be penalized in months 2 and 3) .What would be the value-maximizing decision for Beta?

• A)Cooperate since $3,000 > PV_{Benefits of cheating}.
• B)Cooperate since $6,500/1.025)> PV_{Benefits of cheating}.
• C)Cheat since PV_{Benefits of cheating} > $2,820.
• D)Cheat since PV_{Benefits of cheating} < $5,641.

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Definitions:

Wholesale Facility

A location or establishment primarily engaged in selling goods in large quantities at reduced prices to retailers or other businesses, rather than to the general public.

Merchandising Programs

Strategies and practices that companies use to promote the sale of products in retail environments, which can include product placement, pricing strategies, and promotional activities.

Corporate Vertical Marketing System

A tightly integrated supply chain structure where a single company owns or controls each step of the production and distribution process.

21st Century Fox

A former American multinational mass media corporation involved in film and television production, known for its significant influence in the entertainment industry.