Table 11-9
$\begin{array}{c}
\text { Alistair's (A) Choices }\
\text { Baine's (B) Choices }
\begin{array}{|c|c|c|}
\hline & \begin{array}{c}
\text { Increase } \
\text { advertising } \
\text { budget }
\end{array} & \begin{array}{c}
\text { Leave } \
\text { advertising } \
\text { budget as is }
\end{array} \
\hline \begin{array}{c}
\text { Increase advertising } \
\text { budget }
\end{array} & \begin{array}{c}
\text { A: } \$ 30,000 \text { profit } \
\text { B: } \$ 30,000 \text { profit }
\end{array} & \begin{array}{c}
\text { A: } \$ 10,000 \text { profit } \
\text { B: } \$ 50,000 \text { profit }
\end{array} \
\hline \begin{array}{c}
\text { Leave advertising } \
\text { budget as is }
\end{array} & \begin{array}{c}
\text { A: } \$ 50,000 \text { profit } \
\text { B: } \$ 10,000 \text { profit }
\end{array} & \begin{array}{c}
\text { A: } \$ 40,000 \text { profit } \
\text { B: } \$ 40,000 \text { profit }
\end{array} \
\hline
\end{array}\end{array}$
Alistair Luggage and Baine Baggage are the only firms selling luggage in the upscale town of Montecito. Each firm must decide on whether to increase its advertising spending to compete for customers.If one firm increases its advertising budget but the other does not, then the firm with the higher advertising budget will increase its profit. Table 11-9 shows the payoff matrix for this advertising game.
-Refer to Table 11-9.If Alistair assumes that Baine would increase its advertising budget,what should it do?

Question

Table 11-9
 $\begin{array}{c}
\text { Alistair's (A) Choices }\
\text { Baine's (B) Choices }
\begin{array}{|c|c|c|}
\hline & \begin{array}{c}
\text { Increase } \
\text { advertising } \
\text { budget }
\end{array} & \begin{array}{c}
\text { Leave } \
\text { advertising } \
\text { budget as is }
\end{array} \
\hline \begin{array}{c}
\text { Increase advertising } \
\text { budget }
\end{array} & \begin{array}{c}
\text { A: } \$ 30,000 \text { profit } \
\text { B: } \$ 30,000 \text { profit }
\end{array} & \begin{array}{c}
\text { A: } \$ 10,000 \text { profit } \
\text { B: } \$ 50,000 \text { profit }
\end{array} \
\hline \begin{array}{c}
\text { Leave advertising } \
\text { budget as is }
\end{array} & \begin{array}{c}
\text { A: } \$ 50,000 \text { profit } \
\text { B: } \$ 10,000 \text { profit }
\end{array} & \begin{array}{c}
\text { A: } \$ 40,000 \text { profit } \
\text { B: } \$ 40,000 \text { profit }
\end{array} \
\hline
\end{array}\end{array}$ 
Alistair Luggage and Baine Baggage are the only firms selling luggage in the upscale town of Montecito. Each firm must decide on whether to increase its advertising spending to compete for customers.If one firm increases its advertising budget but the other does not, then the firm with the higher advertising budget will increase its profit. Table 11-9 shows the payoff matrix for this advertising game.
-Refer to Table 11-9.If Alistair assumes that Baine would increase its advertising budget,what should it do?

Quizplus · Accepted Answer

If Alistair assumes that Baine would increase its advertising budget, it should also increase its own advertising spending in order to match Baine and ensure that it doesn't lose market share. In this case, both firms will earn a profit of $30,000. If Alistair keeps its budget the same, it will only earn a profit of $10,000 while Baine earns $50,000. Alternatively, if Alistair reduces its budget, it will earn a profit of $40,000 while Baine earns $40,000, still resulting in a lower profit than if they both increased their advertising spending. Lastly, it's not true that being a duopolist Alistair is not affected by Baine's choices, as the table clearly shows that their profits are dependent on each other's decisions.

Table 11-9 Alistair Luggage and Baine Baggage Are the Only Firms Selling