Question

Suppose Proctor​ & Gamble​ (PG) and Johnson​ & Johnson​ (JNJ) are simultaneously considering new advertising campaigns. Each firm may choose a​ high, medium, or low level of advertising. What are each​ firm's best responses to its​ rival's strategies? Does either firm have a dominant​ strategy? What is the Nash equilibrium in this​ game? If PG picks​ high, then JNJ should pick ▼ medium high low ​; if PG picks​ medium, JNJ should pick ▼ low medium high ​; and if PG picks​ low, then JNJ should pick ▼ medium low high . If JNJ picks​ high, then PG should pick ▼ low high medium ​; if JNJ picks​ medium, PG should pick ▼ medium low high ​; and if JNJ picks​ low, then PG should pick ▼ medium high low . ​PG's dominant strategy is to pick ▼ low medium high and​ JNJ's dominant strategy is to pick ▼ high low medium . Identify the Nash equilibrium in this game. A. The Nash equilibrium is for both firms to pick medium. B. The Nash equilibrium is for both firms to pick low. C. The Nash equilibria are for PG to pick medium and JNJ to pick low and for PG to pick low and JNJ to pick medium. D. The Nash equilibrium is for both firms to pick high. E. This game has no Nash equilibria.

Answer 1

Answer:

B. The Nash equilibrium is for both firms to pick low

Explanation:

We can see the following responses from both players

If PG chooses High, JNJ will have the highest payoff when it selects Low

If PG chooses Medium, JNJ will have the highest payoff when it selects Low

If PG chooses Low, JNJ will have the highest payoff when it selects Low

Similarly,

If JNJ chooses High, PG will have the highest payoff when it selects Low

If JNJ chooses Medium, PG will have the highest payoff when it selects Low

If JNJ chooses Low, PG will have the highest payoff when it selects Low

Hence PG has a dominant strategy to pick Low. Similarly JNJ has a dominant strategy to pick Low as well.