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[The soft drink industry is dominated by TCCC and PSC. The market is worth $6 billion. Each firm can decide whether to advertise, but advertising costs $1 billion to any firm undertaking it. Moreover, advertising will create only negligible new demand as the market is already saturated. So, for the purpose of this question, assume that the market remains at $6 billion regardless of advertising. If one firm advertises and the other does not, then the former captures the whole market. If both firms advertise, then TCCC captures 60% of the market and PSC captures 40% of the market, but the advertising must be paid for. If neither firm advertises, then the market is again split 60:40, with 60% going to TCCC and 40% to PSC.] a) [Draw the payoff matrix for this game where each player's payoff is equal to the value of market it captures less the cost of advertisement] Pay-offs are calculated correctly and presented well in a tabular format. b) [Do any of the firms have dominant strategies? If so, what are they? Is there a dominant strategy equilibrium? If so, what is it? Are there any Nash Equilibria in this game? If so, what are they? Provide a brief and to-the-point answer. Extra writing will not gain more marks.] All sub-parts answered correctly c) [The dental lobby campaigns to ban soft drink advertising because of adverse effects of these drinks on dental hygiene. How much should TCCC and PSC spend in lobbying efforts to defeat such moves to introduce a ban? Explain your answer in 100 words or less. (Hint: Use the pay-off matrix from part (a) to determine your answer)] Logical and correct explanation within word-limit.

[The soft drink industry is dominated by TCCC and PSC. The market is worth $6 billion. Each firm can decide whether to advertise, but advertising costs $1 billion to any firm undertaking it. Moreover, advertising will create only negligible new demand as the market is already saturated. So, for the purpose of this question, assume that the market remains at $6 billion regardless of advertising. If one firm advertises and the other does not, then the former captures the whole market. If both firms advertise, then TCCC captures 60% of the market and PSC captures 40% of the market, but the advertising must be paid for. If neither firm advertises, then the market is again split 60:40, with 60% going to TCCC and 40% to PSC.] a) [Draw the payoff matrix for this game where each player's payoff is equal to the value of market it captures less the cost of advertisement] Pay-offs are calculated correctly and presented well in a tabular format. b) [Do any of the firms have dominant strategies? If so, what are they? Is there a dominant strategy equilibrium? If so, what is it? Are there any Nash Equilibria in this game? If so, what are they? Provide a brief and to-the-point answer. Extra writing will not gain more marks.] All sub-parts answered correctly c) [The dental lobby campaigns to ban soft drink advertising because of adverse effects of these drinks on dental hygiene. How much should TCCC and PSC spend in lobbying efforts to defeat such moves to introduce a ban? Explain your answer in 100 words or less. (Hint: Use the pay-off matrix from part (a) to determine your answer)] Logical and correct explanation within word-limit.

Principles of Microeconomics
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter17: Oligopoly
Section: Chapter Questions
Problem 9PA
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Question 4 [The soft drink industry is dominated by TCCC and PSC. The market is worth $6 billion. Each firm can decide whether to advertise, but advertising costs $1 billion to any firm undertaking it. Moreover, advertising will create only negligible new demand as the market is already saturated. So, for the purpose of this question, assume that the market remains at $6 billion regardless of advertising. If one firm advertises and the other does not, then the former captures the whole market. If both firms advertise, then TCCC captures 60% of the market and PSC captures 40% of the market, but the advertising must be paid for. If neither firm advertises, then the market is again split 60:40, with 60% going to TCCC and 40% to PSC.] a) [Draw the payoff matrix for this game where each player's payoff is equal to the value of market it captures less the cost of advertisement] Pay-offs are calculated correctly and presented well in a tabular format. b) [Do any of the firms have dominant strategies? If so, what are they? Is there a dominant strategy equilibrium? If so, what is it? Are there any Nash Equilibria in this game? If so, what are they? Provide a brief and to-the-point answer. Extra writing will not gain more marks.] All sub-parts answered correctly c) [The dental lobby campaigns to ban soft drink advertising because of adverse effects of these drinks on dental hygiene. How much should TCCC and PSC spend in lobbying efforts to defeat such moves to introduce a ban? Explain your answer in 100 words or less. (Hint: Use the pay-off matrix from part (a) to determine your answer)] Logical and correct explanation within word-limit.
Transcribed Image Text:Question 4 [The soft drink industry is dominated by TCCC and PSC. The market is worth $6 billion. Each firm can decide whether to advertise, but advertising costs $1 billion to any firm undertaking it. Moreover, advertising will create only negligible new demand as the market is already saturated. So, for the purpose of this question, assume that the market remains at $6 billion regardless of advertising. If one firm advertises and the other does not, then the former captures the whole market. If both firms advertise, then TCCC captures 60% of the market and PSC captures 40% of the market, but the advertising must be paid for. If neither firm advertises, then the market is again split 60:40, with 60% going to TCCC and 40% to PSC.] a) [Draw the payoff matrix for this game where each player's payoff is equal to the value of market it captures less the cost of advertisement] Pay-offs are calculated correctly and presented well in a tabular format. b) [Do any of the firms have dominant strategies? If so, what are they? Is there a dominant strategy equilibrium? If so, what is it? Are there any Nash Equilibria in this game? If so, what are they? Provide a brief and to-the-point answer. Extra writing will not gain more marks.] All sub-parts answered correctly c) [The dental lobby campaigns to ban soft drink advertising because of adverse effects of these drinks on dental hygiene. How much should TCCC and PSC spend in lobbying efforts to defeat such moves to introduce a ban? Explain your answer in 100 words or less. (Hint: Use the pay-off matrix from part (a) to determine your answer)] Logical and correct explanation within word-limit.
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