Table 9-8 Firm A (Alistair's) and Firm B (Baine's) are the only firms selling luggage in the upscale city of Adelaide. 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 9-8 shows the payoff matrix for this advertising game.
-Refer to Table 9-8.If Alistair assumes that Baine would increase its advertising budget,what should it do?

Question

Table 9-8  Firm A (Alistair's) and Firm B (Baine's) are the only firms selling luggage in the upscale city of Adelaide. 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 9-8 shows the payoff matrix for this advertising game.
-Refer to Table 9-8.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, then the best option for Alistair would be to also increase its advertising spending. This would allow Alistair to compete with Baine on an equal footing and potentially increase its share of the market. Choosing to keep its own budget the same or reduce it would result in Alistair losing out to Baine's increased advertising spend. Alistair cannot rely on its 50 per cent market share as Baine may still capture some of its customers with higher advertising spending. Therefore, the best option is to increase advertising spending to remain competitive.

Table 9-8 Firm a (Alistair's) and Firm B (Baine's)