Scenario 16-4
Consider two cigarette companies, PM Inc. and Brown Inc. If neither company advertises, the two companies split the market and earn $50 million each. If they both advertise, they again split the market, but profits are lower by $10 million since each company must bear the cost of advertising. Yet if one company advertises while the other does not, the one that advertises attracts customers from the other. In this case, the company that advertises earns $60 million while the company that does not advertise earns only $30 million.
-Refer to Scenario 16-4.What is PM Inc.'s dominant strategy?
A)To refrain from advertising regardless of whether Brown Inc.advertises
B)To advertise only if Brown Inc.advertises
C)To advertise only if Brown Inc.does not advertise
D)To advertise regardless of whether Brown Inc.advertises

Question

Quizplus · Accepted Answer

PM Inc.'s dominant strategy is to advertise regardless of whether Brown Inc. advertises because advertising always results in a higher or equal payoff compared to not advertising.

Scenario 16-4 Consider Two Cigarette Companies, PM Inc. and Brown Inc. If