Two men\'s clothing stores that compete for most of the market in a small town i

ID: 1223396 • Letter: T

Question

Two men's clothing stores that compete for most of the market in a small town in Ohio must choose their advertising levels simultaneously. The following payoff table facing the two firms, Arbuckle & Son and Mr. B's shows the weekly profit outcomes for the various advertising decision combinations. Use this payoff table to answer questions below Does Arbuckle and Son have a dominant strategy? Explain why or why not. Does Mr. B's have a dominant strategy? Explain why or why not. For the advertising decision facing Arbuckle & Son and Mr. B, state whether each of the following statements is TRUE or FALSE and EXPLAIN (JUSTIFY) YOUR ANSWER. When both firms choose a high level of advertising, they are in Nash equilibrium. When both firm choose a low- level of advertising, they are in Nash equilibrium. This decision situation is a prisoners dilemma. Cell's B and C are not strategically stable. A dominant strategy equilibrium exists for Arbuckle and Mr. B.

Explanation / Answer

a.and b Yes, Both Arbankle & Son and Mr.B both has a dominant strategy as Low Advertizing level. No matter what MR. B does, Arbankle gets a higher payoff by advertising at low level -- if Mr. B too advertizes low level, Arbankle gets $3500 instead of $3000; and if Mr. B advertizes high, Arbankle gets $5000 instead of $4000. The payoffs are symmetric, so Mr. B also does better to advertise low, no matter what Arbankle does.

c. False, as Both Arbankle and Mr. B can improve their payoff by independently changing their strategy from High to Low

d. True , as Both Arbankle and Mr. B cann't improve their payoff by independently changing their strategy from Low to high.

e. True, as the payoff structure is such that both can get higher payoff by simultaneously having high advertising level, but due to payoff structure ends up advertising low level.

f. False, as the cells are strategically stable as in both cells , the one who advertise low gets higher payoff and the one who advertise high gets lower payoff.

g. True, Since both Arbuckle and Mr. B both has Low as dominant strategy, and both advertising low is a dominant strategy equilibrium.

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Two men\'s clothing stores that compete for most of the market in a small town i

Two mens clothing stores that compete for most of the market in a small town in

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Two men\'s clothing stores that compete for most of the market in a small town i

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