Mars and Hershey's dominate the domestic chocolate candy bar business
Question # 00318072
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Updated on: 06/18/2016 12:11 PM Due on: 06/18/2016
Mars and Hershey's dominate the domestic chocolate candy bar business. In
this mature market, advertising by individual firms does little to convince more
people to eat candy. Effective advertising simply steals sales from rivals. Big
profit gains could be had if these rivals could simply agree to stop advertising.
Assume Mars and Hershey's are trying to set optimal advertising strategies.
Mars can choose either row in the payoff matrix defined below, whereas
Hershey's can choose either column. The first number in each cell is Mars
payoff; the second number is the payoff to Hershey's. This is a oneshot,
simultaneousmove game and the first number in each cell is the profit payoff
to Mars. The second number is the profit payoff to Hershey's.
a.
Is there a Nash equilibrium strategy for each firm? If so, what is it?
Question 2: Every year, management and labor renegotiate a new employment
contract by sending their proposals to an arbitrator who chooses the best
proposal (effectively giving one side or the other $1 million). Each side can
choose to hire, or not hire, an expensive labor lawyer (at a cost of $200,000)
who is effective at preparing the proposal in the best light. If neither hires
lawyers or if both hire lawyers, each side can expect to win about half the time.
If only one side hires a lawyer, it can expect to win threequarters of the time.
a.
Diagram this simultaneous move game.
b.
What is the Nash Equilibrium of the game?
c.
Would the sides want to ban lawyers?
this mature market, advertising by individual firms does little to convince more
people to eat candy. Effective advertising simply steals sales from rivals. Big
profit gains could be had if these rivals could simply agree to stop advertising.
Assume Mars and Hershey's are trying to set optimal advertising strategies.
Mars can choose either row in the payoff matrix defined below, whereas
Hershey's can choose either column. The first number in each cell is Mars
payoff; the second number is the payoff to Hershey's. This is a oneshot,
simultaneousmove game and the first number in each cell is the profit payoff
to Mars. The second number is the profit payoff to Hershey's.
a.
Is there a Nash equilibrium strategy for each firm? If so, what is it?
Question 2: Every year, management and labor renegotiate a new employment
contract by sending their proposals to an arbitrator who chooses the best
proposal (effectively giving one side or the other $1 million). Each side can
choose to hire, or not hire, an expensive labor lawyer (at a cost of $200,000)
who is effective at preparing the proposal in the best light. If neither hires
lawyers or if both hire lawyers, each side can expect to win about half the time.
If only one side hires a lawyer, it can expect to win threequarters of the time.
a.
Diagram this simultaneous move game.
b.
What is the Nash Equilibrium of the game?
c.
Would the sides want to ban lawyers?
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Rating:
/5
Solution: Mars and Hershey's dominate the domestic chocolate candy bar business