-Two software firms have developed an identical new software application. They are debating whether to give the new app away free and then sell add-ons or sell the application at $30 a copy. The payoff matrix is above and the payoffs are profits in millions of dollars. What is the Nash equilibrium of the game?
A) Both Firm 1 and 2 will sell the software application at $30 a copy.
B) Both Firm 1 and 2 will give the software application away free.
C) Firm 1 will give the application away free and Firm 2 will sell it at $30.
D) There is no Nash equilibrium to this game.

Question

-Two software firms have developed an identical new software application. They are debating whether to give the new app away free and then sell add-ons or sell the application at $30 a copy. The payoff matrix is above and the payoffs are profits in millions of dollars. What is the Nash equilibrium of the game?
A) Both Firm 1 and 2 will sell the software application at $30 a copy. 
B) Both Firm 1 and 2 will give the software application away free. 
C) Firm 1 will give the application away free and Firm 2 will sell it at $30. 
D) There is no Nash equilibrium to this game.

Quizplus · Accepted Answer

In this scenario, both firms giving the software away for free is the Nash equilibrium because neither firm can increase their payoff by unilaterally changing their strategy from giving it away for free to selling it at $30, given the other firm's strategy.

-Two Software Firms Have Developed an Identical New Software Application