(Figure: Nike and Reebok Sales) Use Figure: Nike and Reebok Sales. Reebok and Nike must decide whether to have a sale or not, based on the potential economic profits shown in the table. Which of these is true?

Question

(Figure: Nike and Reebok Sales) Use Figure: Nike and Reebok Sales. Reebok and Nike must decide whether to have a sale or not, based on the potential economic profits shown in the table. Which of these is true?
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Quizplus · Accepted Answer

In this scenario, there is no dominant strategy for either company, meaning that each company's best response depends on what the other company chooses to do. However, if both companies choose to keep their prices high, they will both earn higher profits than if they both have a sale. Therefore, the best choice for both Reebok and Nike would be to keep their prices high. This is known as a Nash equilibrium, where neither player has an incentive to change their strategy, given the other player's strategy.