10. This game is the classic prisoners' or oligopolists' dilemma. If played only once each player must choose their dominant strategy, Don't Advertise and earn payoffs of 20 (circled in red), though if they could have both agreed to advertise their payoffs would be 40 each (circled in blue).

   To see why this is the one-play outcome, take the perspective of one player at a time. If Firm 1 knew Firm 2 would Advertise it would earn 50 by choosing Don't Advertise and only 40 by choosing to Advertise, so Don't Avertise pays better, Likewise if it knew Firm 2 would choose Don't Advertise it would choose Don't Advertise for a payoff of 20 rather than 14. The identical reasoning holds for Firm 2.

Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved