Consider the breakfast cereal market. Post and General Mills must simultaneously decide whether to spend money on advertising their new tuna crunch cereal. If both companies advertise, each company will earn profits of $6 million. If neither company advertises, each company will earn profits of $8 million. However, if one company advertises and the other does not, the company that advertises earns profits of $12 million and the company that does not earns profits of $3 million. Explain why the following outcomes are either a Nash equilibrium or not a Nash equilibrium.
a. General Mills advertises and Post does not advertise.
b. Neither General Mills nor Post advertises.
c. Both General Mills and Post advertise.

Question

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The Answer of Consider the breakfast cereal market. Post and General Mills must simultaneously decide whether to spend money on advertising their new tuna crunch cereal. If both companies advertise, each company will earn profits of $6 million. If neither company advertises, each company will earn profits of $8 million. However, if one company advertises and the other does not, the company that advertises earns profits of $12 million and the company that does not earns profits of $3 million. Explain why the following outcomes are either a Nash equilibrium or not a Nash equilibrium.
a. General Mills advertises and Post does not advertise.
b. Neither General Mills nor Post advertises.
c. Both General Mills and Post advertise.

Consider the Breakfast Cereal Market