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1. Consider the following game: There are two companies: Nike and Adidas. They both need to make a choice: to increase the marketing costs or not change it. If both companies increase, they both will have $100 million profit. If neither company change, each will have a profit of $50 million. If only one company increases marketing costs, its profit will be $120 million and the other airline's profit will be $40 million. Draw the payoff matrix. Find the Nash equilibrium. Explain why this is the Nash equilibrium.

1. Consider the following game: There are two companies: Nike and Adidas. They both need to make a choice: to increase the marketing costs or not change it. If both companies increase, they both will have $100 million profit. If neither company change, each will have a profit of $50 million. If only one company increases marketing costs, its profit will be $120 million and the other airline's profit will be $40 million. Draw the payoff matrix. Find the Nash equilibrium. Explain why this is the Nash equilibrium.

Microeconomics A Contemporary Intro
Microeconomics A Contemporary Intro
10th Edition
ISBN:9781285635101
Author:MCEACHERN
Publisher:MCEACHERN
Chapter10: Monopolistic Competition And Oligopoly
Section: Chapter Questions
Problem 13PAE
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1. Consider the following game: There are two companies: Nike and Adidas. They both need to make a choice: to increase the marketing costs or not change it. If both companies increase, they both will have $100 million profit. If neither company change, each will have a profit of $50 million. If only one company increases marketing costs, its profit will be $120 million and the other airline's profit will be $40 million. Draw the payoff matrix. Find the Nash equilibrium. Explain why this is the Nash equilibrium.
Transcribed Image Text:1. Consider the following game: There are two companies: Nike and Adidas. They both need to make a choice: to increase the marketing costs or not change it. If both companies increase, they both will have $100 million profit. If neither company change, each will have a profit of $50 million. If only one company increases marketing costs, its profit will be $120 million and the other airline's profit will be $40 million. Draw the payoff matrix. Find the Nash equilibrium. Explain why this is the Nash equilibrium.
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