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Glassworks and Clearsmooth compete in the local market for windshield repairs. The market size (total available profits) is $10 million per year. Each firm can choose whether to advertise on local television. If a firm chooses to advertise in a given year, it costs that firm $3 million. If one firm advertises and the other does not, then the former captures the whole market. If both firms advertise, they split the market 50:50.

Suppose the two windshield-repair firms know they will compete for just one year. Write down the payoff matrix for this game. Find the Nash equilibrium strategies.

Macroeconomics, Economics

  • Category:- Macroeconomics
  • Reference No.:- M9488838

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