Suppose that each of the only two firms in an industry has the independent choice of advertising its product or not advertising.If neither advertises, each gets $20 million in profit; if both advertise, their profits will be $10 million each; and if one advertises while the other does not, the advertiser gets $25 million profit while the other gets $4 million profit.According to game theory, the likely strategy by the firms is:

Question

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In a non-cooperative game like this, both firms will choose to advertise because it is the dominant strategy. Advertising ensures a higher payoff regardless of the other firm's decision, leading both to advertise and earn $10 million each.

Suppose That Each of the Only Two Firms in an Industry