Target and Kmart are engaging into the following one-shot game: if Target advertises and Kmart does not, Target will make $20 million in profits and Kmart will make $6 million. If Kmart advertises and Target does not, Target will make $2 million and Kmart will make $6 million. If Target advertises and Kmart advertises, each firm earns $10 million. If neither firm advertises, Kmart will make $8 million and Target will make $4 million.
a) Write the payoff matrix for the above game.
b) Does Target have a dominant strategy?
c) Does Kmart have a dominant strategy?
d) What is the Nash equilibrium for the one-shot game?