Two companies compete for a share of the soft drink market. Each worked with an

Question

Two companies compete for a share of the soft drink market. Each worked with an advertising agency in order to develop alternative advertising strategies for the coming year (e.g., a variety of television advertisements, product promotions, in-store displays, etc.). Each company has identified four possible primary marketing initiatives for the upcoming year - the table below indicates the projected change in market share (i.e., % of industry sales) for Company A once the two companies select their primary marketing initiative for the upcoming year.

Company B
b1 b2 b3 b4
Company A a1 0 -1.5 -0.8 2
a2 3 -0.5 0.5 -1
a3 1 -2.5 0 2
a4 2 2 1 1.5

a. Complete this table to make it a normal form one-period, simultaneous strategy game.
b. Does either company have a dominant advertising strategy? Why or why not?
c. What advertising option do you predict each company will choose (assuming that their selection is consistent with game theory expectations).

Explanation / Answer

a: p(a3) =.8    p(a4) = .2

b: p(b1) = .4   p (b2) = .6

value 2.8

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