Questions:
1.
a. Does Coke have a dominant strategy? If yes, what is it?
b. Does Pepsi have a dominant strategy? If yes, what is it?
c. What is the likely outcome of this advertising decision problem? Verify that your answer is a Nash equilibrium by explaining why it is strategically stable.
d. Pepsi's highest payoff occurs when Coke and Pepsi both choose high ad budgets. Explain why Pepsi will not likely choose a high ad budget.
2. What is tacit collusion? How would the behavior of the firms differ from that of members of a cartel? Why would tacit collusion exist?

Solution Preview

1.
a. Does Coke have a dominant strategy? If yes, what is it?

A dominant strategy means that Coke will get its best outcome by choosing that strategy no matter what Pepsi does. That is not the case here: if Pepsi chooses Low or Medium, Coke's best strategy is Medium, but if Pepsi chooses High, Coke's best strategy is Low.

b. Does Pepsi have a dominant strategy? If yes, what is it?

Pepsi also does not have a dominant strategy. If Coke chooses Low or Medium, Pepsi's best strategy is Medium, but if Coke chooses High, Pepsi's best strategy is low.

c. What is the likely outcome of this advertising decision problem? Verify that your answer is a Nash equilibrium by explaining why it is ...

Solution Summary

Given the payoff matrix in an advertising war between Coke and Pepsi, this solution uses game theory to predict the likely outcome, including finding the Nash equilibrium.

Please help with the following problem.
Both firms have 2 strategies available: continue the advertising war (W) or reduce their advertising budget (R). The payoffs for each strategy combination are given in the following payoff matrix.
PepsiCoke
W

Use game theory analysis to describe the competitive behavior of CokeandPepsi making specific references to actions taken by each firm. What conclusions can you draw about this type of competitive strategy?

Dominant Strategy/Nash Equilibrium
Firm 2
Firm 1
Price High Price Low
Price High 400, 350 -80, 800
Price Low 800, -100 200,200
a) Does either firm have a dominant strategy, and if so, what it

Where calculations are needed, please show step-by-step calculations used to arrive at your answer (s)
A monopolist has demandand cost curves given by:
QD = 10,000 - 20P
TC = 1,000 + 10Q + .05Q2
a. Find the monopolist's profit-maximizing quantity and price.
b. Find the monopolist's profit.
The following matrix

In a one-shot game, if you advertise and your rival advertises, you will earn $7 million and your rival will earn $2 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 $8 million and your rival will make $3 million

Please help with the following problem.
Explain what would happen to equilibrium price and quantity in the market for Pepsi if the following occurred (be sure to indicate WHY it happens as well):
a. The price of Coke decreases.
b. Average household income falls from $50,000 to $43,000
c. There are improvements in so

Recognize each of the following statements as being true or false and explain why
A. A set of strategies constitutes a Nash equilibrium if no player can improve their position given the strategies chosen by other players.
B. A secure strategy is very conservative and should only be considered if the rival's optimal strateg

Driver 2
Left Right
Driver 1 Left 0,0 -1000 -1000
Right -1000, -1000 0,0
-Does either player have a dominant strategy?
-Is there a Nash equilibrium in this game? Explain
-Why is this game called a coope