4. Assume that Coca Cola and Pepsi are deciding on whether to invest in a new round of advertising. They have two choices - advertise (A) or don't advertise (DA). Remember advertising costs money and hence reduces profits. Decisions are made independently without communication between the 2 firms. The table below gives the payoff (profits in thousands of dollars) for each firm in the order (Coca Cola, Pepsi). Coca Cola DA A Pepsi DA (50, 50) (75,0) A (0,75) (25, 25) Assuming the game is only played once, what is the best move for each player? What is the Nash equilibrium of the game?

3. Describe some interaction your company has with another entity (firms producing complementary or substitute products, upstream sup- pliers, or downstream customers), or between internal divisions within your firm that can be described as a sequential or simultaneous game. Diagram the strategies, players, and compute payoffs as best you can. Compute the Nash equilibria. What can you do to change the rules of the game to your advantage? Compute the profit consequences of your advice.

2. Suppose that two firms, an incumbent and a potential entrant, compete in a market. If they both operate, the resulting profits for the incumbent and the potential entrant are $30 million and $5 million, respectively. If the potential entrant decides not to enter the market, the resulting profits for the incumbent and potential entrant are $100 million and SO, respectively. Assume that it is not an option for the incumbent to exit the market (a) Which of the two possible outcomes (for the potential entrant to enter or not enter) are Pareto efficient? (b) Now suppose there are side payments available Which of the two possible outcomes is Pareto efficient? (c) Is it possible that the incumbent will agree to pay for the introduction of side payments? (d) Now suppose that side payments are allowed, but it costs $80 million in legal fees to actually use them. Which of the two possible outcomes (for the potential entrant to enter or not enter) are Pareto efficient allocations? (For…

5. To advertise or not to advertise Suppose that Expresso and Beantown are the only two firms that sell coffee. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises: Expresso Advertise Doesn't Advertise Beantown Advertise 10, 10 2, 18 For example, the upper right cell shows that if Expresso advertises and Beantown doesn't advertise, Expresso will make a profit of $18 million, and Beantown will make a profit of $2 million. Assume this is a simultaneous game and that Expresso and Beantown are both profit-maximizing firms. Doesn't Advertise 18, 2 11, 11 If Expresso decides to advertise, it will earn a profit of S advertise. If Expresso decides not to advertise, it will earn a profit of S not advertise. O O million if Beantown advertises and a profit of s If Beantown advertises, Expresso makes a higher profit if it chooses If Beantown doesn't advertise, Expresso makes a higher profit if it cnot to advertise…

4. Consider the following game. There are two players and two possible simultaneous move games A and B. Player 1 first chooses which game is to be played; both player observe which game is played and choose their strategy. The payoff matrices for Game A and B are given by : where k> >0. Game A U D L (10,5) (0,0) R (0,0) (5,10) Game B: U D (a) Write down the extensive form of this game. (b) Assume k = 2. Solve for all subgame perfect Nash equilibria of this game. L R (kk) (0,0) (0,0) (0,0) (c) Can you find a value of k such that there exists a SPNE in which player 1 chooses game B? Can you find a value of k such that all SPNE involve player 1 choosing game B?

ABC Inc. Offer Rebate No Rebate XYZ Corp Offer Rebate 20. 10 30.0 No Rebate 12.16 20,4 Which of the following is true about the game above? Lutfen birini seçin. O A Both ABC and XYZ offer a rebate as a dominant strategy OB ABC's dominant strategy is not offer a rebate, O C ABCS dominant strategy is to cffer a rebate. O D XYZE dorninant strategy is to offer a rebate.

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5. To advertise or not to advertise Suppose that Fizzo and Pop Hop are the only two firms that sell orange soda. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises: Рop Hop Advertise Doesn't Advertise Advertise 10, 10 18, 2 Fizzo Doesn't Advertise 2, 18 11, 11 For example, the upper right cell shows that if Fizzo advertises and Pop Hop doesn't advertise, Fizzo will make a profit of $18 million, and Pop Hop will make a profit of $2 million. Assume this is a simultaneous game and that Fizzo and Pop Hop are both profit-maximizing firms. If Fizzo decides to advertise, it will earn a profit of $ million if Pop Hop advertises and a profit of $ million if Pop Hop does not advertise. If Fizzo decides not to advertise, it will earn a profit of S million if Pop Hop advertises and a profit of $ million if Pop Hop does not advertise. If Pop Hop advertises, Fizzo makes a higher profit if it chooses If Pop Hop…

5. To advertise or not to advertise Suppose that two firms, Hatte Latte and Bean Bruuer, are the only sellers of espresso in some hypothetical market. The following payoff matrix gives the profit (in millions of dollars) earned by each company depending on whether or not it chooses to advertise: Hatte Latte Advertise Doesn't Advertise Advertise 10, 10 Bean Bruuer 2,18 Doesn't Advertise 18, 2 11, 11 For example, the lower left cell of the matrix shows that if Bean Bruuer advertises and Hatte Latte does not advertise, Bean Bruuer will make a profit of $18 million, and Hatte Latte will make a profit of $2 million. Assume this is a simultaneous game and that Hatte Latte and Bean Bruuer are both profit-maximizing firms. If Hatte Latte chooses to advertise, it will earn a profit of $ does not advertise. If Hatte Latte chooses not to advertise, it will earn a profit of $ Bruuer does not advertise. million if Bean Bruuer advertises and a profit of $ million if Bean Bruuer advertises and a…

5. To advertise or not to advertise Suppose that Creamland and Dairy King are the only two firms that sell ice cream. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises: Dairy King Advertise Doesn't Advertise Advertise 8, 8 15, 2 Creamland Doesn't Advertise 2, 15 11, 11 For example, the upper right cell shows that if Creamland advertises and Dairy King doesn't advertise, Creamland will make a profit of $15 million, and Dairy King will make a profit of $2 million. Assume this is a simultaneous game and that Creamland and Dairy King are both profit-maximizing firms. If Creamland decides to advertise, it will earn a profit of $ million if Dairy King advertises and a profit of $ million if Dairy King does not advertise. If Creamland decides not to advertise, it will earn a profit of $ million if Dairy King advertises and a profit of $ million if Dairy King does not advertise. If Dairy King advertises,…