Use the following to answer question:
-(Table: Coke and Pepsi Advertising Game)Use Table: Coke and Pepsi Advertising Game.The soft-drink industry is dominated by Coke and Pepsi,and each firm spends a lot of money on advertising.Suppose each firm is considering a costly television commercial during halftime of the Super Bowl.The table shows the payoff matrix of profits that each firm would receive from its advertising decision,given the advertising decision of their rival.Profits in each cell of the payoff matrix are given as (Coke,Pepsi).If each firm makes the decision whether to advertise on the Super Bowl independently,the Nash equilibrium is for Coke _____ and Pepsi _____ during the Super Bowl.
A)to advertise;to advertise
B)not to advertise;not to advertise
C)not to advertise;to advertise
D)to advertise;not to advertise

Question

Use the following to answer question: 
-(Table: Coke and Pepsi Advertising Game)Use Table: Coke and Pepsi Advertising Game.The soft-drink industry is dominated by Coke and Pepsi,and each firm spends a lot of money on advertising.Suppose each firm is considering a costly television commercial during halftime of the Super Bowl.The table shows the payoff matrix of profits that each firm would receive from its advertising decision,given the advertising decision of their rival.Profits in each cell of the payoff matrix are given as (Coke,Pepsi).If each firm makes the decision whether to advertise on the Super Bowl independently,the Nash equilibrium is for Coke _____ and Pepsi _____ during the Super Bowl.
A)to advertise;to advertise 
B)not to advertise;not to advertise 
C)not to advertise;to advertise 
D)to advertise;not to advertise

Quizplus · Accepted Answer

In a Nash equilibrium, each player's strategy is optimal given the other player's strategy. Without the specific table, we typically assume that in competitive advertising scenarios like this, if one firm advertises and the other doesn't, the advertising firm gains a significant advantage. However, if both firms choose to advertise, they might not gain a significant advantage over each other, but they prevent losing ground to the other. If neither advertises, they both save money but don't gain a competitive advantage. Thus, the equilibrium often involves both firms choosing to advertise to avoid being at a disadvantage, leading to the answer where both Coke and Pepsi choose to advertise.

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