Scenario 17-3
Consider two cigarette companies, PM Inc.and Brown Inc.If neither company advertises, the two companies split the market.If they both advertise, they again split the market, but profits are lower, 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.
-Refer to Scenario 17-3.What will these two companies do if they behave as individual profit maximizers

Question

Quizplus · Accepted Answer

Both companies will advertise since they both play dominant strategies. If one company advertises and the other does not, the company that advertises will attract customers from the other, resulting in higher profits for the advertising company. Therefore, both companies will advertise to avoid losing customers to each other.

Scenario 17-3 Consider Two Cigarette Companies, PM Inc.and Brown Inc.If Neither Company