Analyzing the expected profits of two firms Assignment

Analyzing the expected profits of two firms - Assignment Example Through illustration, when the two companies decide in applying this strategy their equilibrium will be In this scenario, King Company and Babil Company both have a dominant option of advertising. No matter what Babil does, King Company will improve his promotion by advertising and vice-versa. However, something odd about the game it seems that the two companies will benefit more when they choose not to advertise. Instead of one gaining 300 and the other losing 80 and vice-versa, they could win 150 each. Therefore, the rational choice of mutual not advertising has a self-destructive flavor that is puzzling. In game theory concept the optimal outcome of the two firms is where no firm has incentives in deviating from the set advertisement strategies after the choice of the opponent is considered. Overall, no firm can receive an incremental benefit of altering actions, assuming the firms remain similar in the strategies. The Nash equilibrium will exists when no firm change their advertisement strategy, despite understanding the opponents strategy. Logically the two companies choose not to advertise and receive payoff of 150. If a person reveals the strategy of King to Babil and vice-versa, no firm will deviate from not advertising. Knowing the move of King, and do not change the behavior of the Babil, the outcome of the two companies not advertising represent the Nash