In the cola industry,all existing firms spend a large amount on advertising just to discourage their customers from switching to other brands.When each firm chooses the dominant strategy to advertise,the resulting payoffs are
A) smaller than if each had cut its advertising budget.
B) larger than if each had cut its advertising budget.
C) the same whether each had cut its advertising budget or not.
D) larger for larger firms only if these large firms cut their advertising budgets.
E) larger for smaller firms only if these smaller firms cut their advertising budgets.

Question

Quizplus · Accepted Answer

When each firm chooses the dominant strategy to advertise, the resulting payoffs are smaller than if each had cut its advertising budget because the costs of advertising reduce the overall profits, even though they maintain market share.

In the Cola Industry,all Existing Firms Spend a Large Amount