Use the following to answer question:
-(Table: Coke and Pepsi Advertising Game)Use Table: Coke and Pepsi Advertising Game.The soft-drink industry is dominated by Coca-Cola and Pepsi,and each firm spends a lot of money on advertising.Suppose each firm is considering a costly television commercial during halftime of the Super Bowl.The table shows the payoff matrix of profits that each firm would receive from their advertising decision,given the advertising decision of their rival.Profits in each cell of the payoff matrix are given as (Coke,Pepsi).If both firms expect to play this game repeatedly (every year for the foreseeable future)and they use a tit-for-tat strategy,in equilibrium,Coke _____ and Pepsi _____.
A)advertises;does not advertise
B)does not advertise;advertises
C)does not advertise;does not advertise
D)advertises;advertises

Question

Use the following to answer question: 
-(Table: Coke and Pepsi Advertising Game)Use Table: Coke and Pepsi Advertising Game.The soft-drink industry is dominated by Coca-Cola and Pepsi,and each firm spends a lot of money on advertising.Suppose each firm is considering a costly television commercial during halftime of the Super Bowl.The table shows the payoff matrix of profits that each firm would receive from their advertising decision,given the advertising decision of their rival.Profits in each cell of the payoff matrix are given as (Coke,Pepsi).If both firms expect to play this game repeatedly (every year for the foreseeable future)and they use a tit-for-tat strategy,in equilibrium,Coke _____ and Pepsi _____.
A)advertises;does not advertise 
B)does not advertise;advertises 
C)does not advertise;does not advertise 
D)advertises;advertises

Quizplus · Accepted Answer

Under a tit-for-tat strategy, a firm will mimic the previous action of its rival. If both firms start by not advertising, they will continue to not advertise in each subsequent year. If one of the firms decides to advertise, the other firm will retaliate in the next year by also advertising. This cycle will continue, resulting in both firms advertising every other year. Therefore, in equilibrium, Coke and Pepsi will not advertise in every year, which corresponds to answer choice C.

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