Pepsi and Coke are each simultaneously deciding whether to engage in a heavy advertising campaign to increase consumers'

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Pepsi And Coke Are Each Simultaneously Deciding Whether To Engage In A Heavy Advertising Campaign To Increase Consumers 1 (107.93 KiB) Viewed 22 times

Pepsi and Coke are each simultaneously deciding whether to engage in a heavy advertising campaign to increase consumers' demand for their product. The game has the following payoff matrix, where the first payoff in each entry is for Pepsi and the second is for Coke: Coke Pepsi Advertise 400, 400 Do not advertise 500, 600 Advertise Do not advertise 500, 800 300, 200 (a) Do Pepsi and Coke have a dominant strategy? If so, specify their dominant strategy. (b) Solve for the Nash equilibrium /equilibria of the game. (c) Suppose now the game is played sequentially, with Coke moving first. Represent the game in extensive form. (d) Solve the game in (c) by backward induction and identify the credible equilibrium. Explain your answer.