Explore BrainMass
Share

Explore BrainMass

    game theory and two companies

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Assume two high-tech companies, X and Y, are the only producers of a new
    product that is used my numerous computer manufacturers. The total demand for the new product is fixed and the price is set. Each firm's market share and profits are a function of the size of its advertising and promotional campaigns.
    If the two firms engage in limited campaigns, each will earn an annual profit of $10 million. If the two firms undertake extensive advertising campaigns, each will earn annual profits of $5 million. In both of the above outcomes, each firm will capture half of the market. If one firm engages in a limited campaign and the other in an extensive campaign, the firm with the extensive campaign will have the larger market share and earn an annual profit of $9 million and the other firm will earn a profit of $3 million.

    a. Assuming a simultaneous move, non-repeated interaction game, identify the
    Nash equilibrium or multiple equilibrium, assuming there is one.

    b. Does either of the players have a dominant strategy. If so, what is it?

    c. Is this an example of prisoner's dilemma? Explain your answer.

    © BrainMass Inc. brainmass.com October 9, 2019, 11:12 pm ad1c9bdddf
    https://brainmass.com/economics/general-equilibrium/game-theory-and-two-companies-248262

    Solution Preview

    See the attached file. We can determine whether equilibrium exists by noting each firm's choices in each situation. If Firm 2 has a limited campaign, firm 1 will want a limited one as well. However, if firm 2 has an extensive campaign, firm 1 will want to have an extensive one as well. The same holds for firm ...

    Solution Summary

    Use of strategy in determining campaigns for high tech companies

    $2.19