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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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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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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
...

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