Assume that the only two firms in the industry, Sundance Inc. and Moondance Ltd., have entered a collusive agreement to reduce their advertising budgets to a minimum. The resuit is that they expect to make profits of S115 million each. However, if either of them cheats. the cheater will increase its profits by $35 million at a cost of $35 million to the other firm. If they both cheat, they will each reduce their profits by $20 million. Moondance Stick to agreement Cheat on agreement Cell A Cell B Moondance: Moondance: Stick to agreement Sundance: Sundance: Sundance Cell c Cell D Cheat on Moondance: Moondance: agreement Sundance: Sundance: a. Complete the matrix by using the table above which shows the options facing the two firms.

Assume that the only two firms in the industry, Sundance Inc. and Moondance Ltd., have entered a collusive agreement to reduce their advertising budgets to a minimum. The resuit is that they expect to make profits of S115 million each. However, if either of them cheats. the cheater will increase its profits by $35 million at a cost of $35 million to the other firm. If they both cheat, they will each reduce their profits by $20 million. Moondance Stick to agreement Cheat on agreement Cell A Cell B Moondance: Moondance: Stick to agreement Sundance: Sundance: Sundance Cell c Cell D Cheat on Moondance: Moondance: agreement Sundance: Sundance: a. Complete the matrix by using the table above which shows the options facing the two firms.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter13: best-practice Tactics: Game Theory

Section: Chapter Questions

Problem 12E

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