Nash equilibrium / game theory
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11. In a one-shot game, if you advertise and your rival advertises, you will each earn $5 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 $10 million and your rival will make $3 million. If your rival advertises and you do not, you will make $1 million and your rival will make $3 million.
a. Write the above game in normal form.
Strategy Advertise Don't Advertise
Advertise 5, 5 10, 3
Don't Advertise 1, 3 2, 4
b. Do you have a dominant strategy?
Dominant strategy is not to advertise
c. Does your rival have a dominant strategy?
Dominant strategy is not to advertise
d. What is the Nash equilibrium for the one-shot game?
For A it's don't advertise; for B it's advertise
e. How much would you be willing to bribe your rival not to advertise?
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Solution Summary
Nash equilibrium and game theory is examined.
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a. Your dominant strategy is Advertise because regardless of your opponent's move, you will always do better with advertise, if your opponent chooses Don't, you get 10 from Ad and 2 from Don't, if your opponent ...
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