(Solved) The diagram below shows the situation for two oligopolists A and B, in an advertising dilemma. \Pi_A and \Pi_B are the relevant profits. Answer


Question: The diagram below shows the situation for two oligopolists \(\mathrm{A}\) and \(\mathrm{B}\), in an advertising dilemma. \(\Pi_{\mathrm{A}}\) and \(\Pi_{\mathrm{B}}\) are the relevant profits. Answer the following questions based on the diagram.

  1. What is the dominant strategy for each firm?
  2. What is the Nash equilibrium for this game?
  3. If firms are in cell 4, does either have any incentive to move? Explain.
  4. Under what condition would firms end up in cell 1? Explain. Does either firm have an incentive to change if both are in cell 1?

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