Use the following to answer question:
Figure: Pricing Strategy in Cable TV Market I
-(Figure: Pricing Strategy in Cable TV Market I)Use Figure: Pricing Strategy in Cable TV Market I.If both CableNorth and CableSouth advertise,then without any collusion:
A)CableNorth will stop advertising to maximize profits.
B)CableSouth will stop advertising to maximize profits.
C)there will be no incentive for either CableNorth or CableSouth to stop advertising.
D)there is an incentive for both CableNorth and CableSouth to stop advertising.

Question

Use the following to answer question:
Figure: Pricing Strategy in Cable TV Market I 
-(Figure: Pricing Strategy in Cable TV Market I)Use Figure: Pricing Strategy in Cable TV Market I.If both CableNorth and CableSouth advertise,then without any collusion:
A)CableNorth will stop advertising to maximize profits. 
B)CableSouth will stop advertising to maximize profits. 
C)there will be no incentive for either CableNorth or CableSouth to stop advertising. 
D)there is an incentive for both CableNorth and CableSouth to stop advertising.

Quizplus · Accepted Answer

If both CableNorth and CableSouth advertise, they will each earn a profit of $20,000. If either of them stops advertising, the other will earn a profit of $30,000 while the former earns $0. However, by choosing to stop advertising, the company will lose its market share in the long run, and it is unlikely that the rival will agree to stop advertising. Therefore, both CableNorth and CableSouth will continue advertising, resulting in a Nash equilibrium where neither will have an incentive to change their strategy.

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