Consider two firms X and Y produce identically tasting cold drinks. In order to increase the demand for its cold drink, firm X increases its advertisement outlay. However the advertising doesn’t increase its demand in the long run. Explain why this must be the case.
use pd game theory and incorporate the following: How are the two firms producing soda similar to a classic PD game? Try setting up a game matrix where the two firms have the following choices- keep the same level of advertising or increase the level of advertising. Which choice will the firm always make, regardless of the actions of the other firm? The outcomes could be market share or profit.
please offer any insight as once again, i am extremely comfused and only can figure out that if one firm keeps the same level of advertising their will be equal profits as the demand reaches a equilibrium with the other firms profits. if the other advertsier increases the advertsing their profits will exceed the other firm.
*please, please help me to answer correctly. it is imperative that i get a more detail answer. thank you.
mary hornbeck
1 answer