Problem
The following is a payoff matrix showing profit in millions of dollars when two companies simultaneously decide on various advertising budgets ($1 million, $2 million, or $3 million):
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Pizza Hut
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|
|
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$1 mill
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$2 mill
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$3 mill
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Papa Johns
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$1 mill
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$45 / $85
|
40 / 80
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25 / 90
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|
$2 mill
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40 / 75
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30 / 60
|
20 / 70
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|
$3 mill
|
50 / 65
|
35 / 55
|
30 / 60
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1. In the first round of strategy elimination (when all three possible budgets are under consideration), which ad budget would the companies exclude?
2. After the first round of elimination (previous question), would either company make a second-round elimination?
3. What would be the likely outcome of this simultaneous advertising decision (i.e. what ad budget would each company end up choosing)?