The two leading U.S. manufacturers of high performance radial tires must set their advertising strategies for the coming year. Each firm has two strategies available: maintain current advertising or increase advertising by 15%. The strategies available to the two firms, G and B, are presented in the payoff matrix below.
The entries in the individual cells are profits measured in millions of dollars. Firm G's outcome is listed before the comma, and Firm B's outcome is listed after the comma.
a. Which oligopoly model is best suited for analyzing this decision? Why? (Remember it is illegal to collude in the United States.)
b. Carefully explain the strategy that should be used by each firm. Support your choice by including numbers.

Question

The two leading U.S. manufacturers of high performance radial tires must set their advertising strategies for the coming year. Each firm has two strategies available: maintain current advertising or increase advertising by 15%. The strategies available to the two firms, G and B, are presented in the payoff matrix below.  
The entries in the individual cells are profits measured in millions of dollars. Firm G's outcome is listed before the comma, and Firm B's outcome is listed after the comma.
a. Which oligopoly model is best suited for analyzing this decision? Why? (Remember it is illegal to collude in the United States.)
b. Carefully explain the strategy that should be used by each firm. Support your choice by including numbers.

Quizplus · Accepted Answer

The Answer of The two leading U.S. manufacturers of high performance radial tires must set their advertising strategies for the coming year. Each firm has two strategies available: maintain current advertising or increase advertising by 15%. The strategies available to the two firms, G and B, are presented in the payoff matrix below.  
The entries in the individual cells are profits measured in millions of dollars. Firm G's outcome is listed before the comma, and Firm B's outcome is listed after the comma.
a. Which oligopoly model is best suited for analyzing this decision? Why? (Remember it is illegal to collude in the United States.)
b. Carefully explain the strategy that should be used by each firm. Support your choice by including numbers.

The Two Leading U