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Nash Equilibrium: Coke & Pepsi Ad War

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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.

Pepsi
Coke
W R
W 4,000; 2,000 5,500; 1,500
R 100; 3,500 5,000; 2,800

a. Find the Nash equilibrium of this game
b. Do you expect the advertising war to continue?

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https://brainmass.com/economics/game-theory/nash-equilibrium-coke-pepsi-ad-war-457456

Solution Preview

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.

Pepsi
Coke
...

Solution Summary

This solution shows how to use game theory and Nash equilibria to predict whether Coke and Pepsi will continue their advertising war or reduce their advertising budgets.

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