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.What is the Nash equilibrium in this game?

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.What is the Nash equilibrium in this game?

Quizplus · Accepted Answer

In a Nash equilibrium, each player's strategy is optimal given the other player's strategy. If both Alistair and Baine increase their advertising budgets, neither can benefit by unilaterally changing their strategy, assuming the payoff matrix supports this outcome.

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