Problem: In a one-shot game, if you advertise and your rival advertises, you will each earn $5 million in profits. If neither of you advertise, your rival will make $4 million and you will make $2 million. If you advertise and your rival does not, you will make $10 million and your rival will make $3 million. If your rival advertises and you do not, you will make $1 million and your rival will make $3 million.
a) Write the above game in normal form.
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Strategy
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Advertise
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Don't Advertise
|
|
Advertise
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5, 5
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10, 3
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|
Don't Advertise
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1, 3
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2, 4
|
b) Do you have a dominant strategy?
c) Does your rival have a dominant strategy?
d) What is the Nash equilibrium for the one-shot game?
e) How much would you be willing to bribe your rival not to advertise?