Question

Taco-bell and Rio wrap are competing in the MI market. Each firm is deciding whether to follow a high spending advertising strategy. More aggressive advertising would lead high spending on media and billboard advertising. The profits associated with each strategy are as follows:

Taco-bell	Rio-Wrap
		Aggressive	Passive
	Aggressive	100, 90	150, 50
	Passive	60, 130	120, 110

a) Does either firm have a dominant strategy? If yes, what is the dominant strategy for each firm?

b) Does either firm have a dominated strategy? If yes, state the strategy for each firm.

c) Find the equilibrium. Is this equilibrium Nash or Dominant strategy or both?

d) Is this game an example of the prisoners’ dilemma? Explain

e) If this game changes to infinitely repetead game, will a cooperation occur? What would be the cooperated strategy? What are their expected payoffs? (assume i=5%)

Answer 1