Analyzing the expected profits of two firms - Assignment Example

Expected Profits of Two Firms al Affiliation) Question Babil King   Do not Advertise Advertise Do not Advertise150,15080,300Advertise300,80100,100Question 2King and Babil Company might decide to arrange for collusion strategy through advertising restrictions. In this case, the two companies might collude by restricting the information that their clients might know based on their produces through the advertising process. This means that King and Babil Company agree in not issuing technical facts about their goods and services in advertisements (Carmona, 2012). . The two companies rely on the methods of generic advertising designed in doing more than getting the attention of the customers and making them know the brand and products.

Through illustration, when the two companies decide in applying this strategy their equilibrium will be BabilKing Do not AdvertiseAdvertiseDo not Advertise(150,150)80,300Advertise300,80100,100Question 3In this scenario, King Company and Babil Company both have a dominant option of advertising. No matter what Babil does, King Company will improve his promotion by advertising and vice-versa. However, something odd about the game it seems that the two companies will benefit more when they choose not to advertise.

Instead of one gaining 300 and the other losing 80 and vice-versa, they could win 150 each. Therefore, the rational choice of mutual not advertising has a self-destructive flavor that is puzzling. BabilKing Do not AdvertiseAdvertiseDo not Advertise150,15080,300Advertise300,80100,100Question 4In game theory concept the optimal outcome of the two firms is where no firm has incentives in deviating from the set advertisement strategies after the choice of the opponent is considered. Overall, no firm can receive an incremental benefit of altering actions, assuming the firms remain similar in the strategies.

The Nash equilibrium will exists when no firm change their advertisement strategy, despite understanding the opponents strategy. Logically the two companies choose not to advertise and receive payoff of 150. If a person reveals the strategy of King to Babil and vice-versa, no firm will deviate from not advertising. Knowing the move of King, and do not change the behavior of the Babil, the outcome of the two companies not advertising represent the Nash equilibrium BabilKing Do not AdvertiseAdvertiseDo not Advertise150,15080,300Advertise300,80100,100ReferencesCarmona, G. (2012). Existence and Stability of Nash Equilibrium.

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