If you advertise and your rival advertises, you each will earn $5 million in profits. If neither of you advertises, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $15 million and the non-advertising firm will earn $1 million. Which of the following is true?
A) A secure strategy for firm A is to not advertise.
B) A secure strategy for firm B is to not advertise.
C) Firm A does not have a secure strategy.
D) None of the answers is correct.

Question

Quizplus · Accepted Answer

Neither firm has a secure strategy because the best decision depends on what the other firm will do. If one firm advertises, the other should also advertise to earn a higher profit. However, if both firms advertise, they will each earn less profit than if neither advertising. Therefore, there is no dominant strategy for either firm.

If You Advertise and Your Rival Advertises, You Each Will