Unformatted text preview: YORK UNIVERSITY - AS/ECON2350 – V.BARDIS PRACTICE SET 4 1. Suppose two advertising companies have two options: Send out e-mail ads (S) or Don’t send out e-mail ads (D) If only one chooses to e-mail ads to consumers, then it will make a profit of 10 and the other will make zero. If both send out what is known as e-mail ads, then consumers will not be as likely to be enticed to buy the advertised products. Instead, many of them will be angry about the ‘Spam’ (‘unsolicited junk e-mail’) cluttering their accounts, few will respond by buying and each firm will receive a payoff of 1. Finally, if a firm doesn’t send out e-mail its profit will be zero. Represent this situation in normal form, that is, write down the outcome matrix of the game.What is the Nash Equilibrium of this game? Is the equilibrium efficient from the two firms’ point of view? Is it efficient from society’s point of view (that is, taking consumers into account)?...
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This note was uploaded on 12/01/2010 for the course ECONOMICS 2350 taught by Professor Bardis during the Summer '08 term at York University.
- Summer '08