Use the following information to work Problems 6 and 7.
Cola wars: What’s your soft drink of choice? Soft drink sales have fallen for six straight years as consumers switched to healthier alternatives such as juices, and cut back on spending in the recession. The two rivals have moved into bottled water, fruit juices, energy drinks, and sports drinks to try to maintain market share. Both companies saw decreased sales, but Pepsi had the greater loss. Overall, Coke product sales were down 0.5 percent while Pepsi saw a 2.6 percent decline
6. Describe the strategies in the advertising and product development game that Coca-Cola and PepsiCo play. Why would you expect these strategies to not include cutting price?
7. With some assumed payoffs, create a payoff matrix for the game you’ve described in Problem 6. Find and explain the equilibrium outcome.