Explain the Prisoner’s Dilemma g
ame, the notion of dominant strategy, and the
concept of Nash equilibrium and
cooperation. Using these concep
ts, then,
analyze the following duopoly game.
Philip Morris and
R.J. Reynolds spend h
uge sums of money each y
ear to
advertise their tobacco products
in an attempt to steal custome
rs from each other.
Suppose each year Philip Morris a
nd R.J. Reynolds have to decid
e whether or
not they want to spend money on
advertising. If neither firm advertises, each will
earn a profit of $2 million. If they both advertise, each will
earn a profit of $1.5
million. If one firm advertises a
nd the other does
not, the fir
m that advertises will
earn a profit of $2.8 million and the ot
her firm will earn $1 m
illion.
If the two companies decide to c
ollude to maximi
ze profits, wha
t will each
company do? What profit
will each company earn?
What is the dominant strategy fo
r each company, and what profit
will each
company earn if they fo
llow those strategies?
Is the solution you found in the
first question a Nash equilibr
ium?
Is the solution you found in the
second question
a Nash equilib
rium?
Assignment Expectations
In the Module 3 Case Assignm
ent, you are expected to:
Describe the purpose
of the paper and prov
ide a conclusion.
Present information in a professional manner.
Answer the Case Assi
gnment questions clearly and provide necess
ary details.
Write clearly and correctly—tha
t is, no poor sentence structure
, no spelling and
grammar mistakes, a
nd no run-on sentences.
Provide citations to support your a
rgument and place references
on a separate
page. (All the sources that you listed in the references sectio
n must be cited in
the paper.) Use APA format to provide citations and references
Listen
.
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Type and double-space the paper.
Whenever appropriate, please use Excel to show supporting compu
tations in
an appendix, present economic information in tables, and use th
e data to
answer follow-up questions.