General Mills and Kellogg’s, major rivals in the breakfast cereal market, decide simultaneously on their advertising strategies. Each has five options, A through E. The following table shows their net profits (in millions of dollars) for various advertising strategy combinations. In each cell, the first entry is the profit for Kellogg’s and the second is the profit for General Mills.
1) Suppose the game is a static game, played simultaneously. Kellogg’s dominant strategy is:
Strategy A
Strategy B
Strategy C
Strategy D
Strategy E
Kelloggs has no dominant strategy
2) Suppose the game is a static game, played simultaneously. General Mills dominant strategy is:
Strategy A
Strategy B
Strategy C
Strategy D
Strategy E
General Mills has no dominant strategy
3) Suppose the game is a static game, played simultaneously. Find Kellogg’s best response for each of General Mills potential strategies:
General Mills chooses A, then Kellogg’s best response is: |
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General Mills chooses B, then Kellogg’s best response is: |
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General Mills chooses C, then Kellogg’s best response is: |
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General Mills chooses D, then Kellogg’s best response is: |
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General Mills chooses E, then Kellogg’s best response is: |
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4) Suppose the game is a static game, played simultaneously. What is the Nash equilibrium for this game? Explain.
5) Suppose instead that the game is played an infinite number of times and that General Mills issues a threat to follow strategy A in all future periods. Would such a threat be credible? Explain.
6) Following from your previous answer: If the game was sequential and General Mills was to follow “strategy A” first, what would be the sequence of moves to follow? Explain