Kellogg's and General Mills are two of the dominant breakfast cereal manufactures in the U.S. Each firm can either sign or not sign an exclusive contract with an Olympian gold-medal athlete to appear on the cover of a cereal box. Both Kellogg's and General Mills have signed athletes in 2008, Michael Phelps and Nastia Liukin, respectively. What does this suggest about the outcome of the oligopoly game?
A) The highest profits are when both companies sign.
B) The best outcome, in terms of profit, is where both companies sign.
C) The Nash equilibrium must be that both companies sign.
D) The Nash equilibrium must be that both companies sign and this always leads to the highest profits.

Question

Quizplus · Accepted Answer

The Nash equilibrium in this scenario is likely that both companies sign athletes, as neither company would benefit from unilaterally changing their strategy given the other's decision.

Kellogg's and General Mills Are Two of the Dominant Breakfast