Consider two rivals, say producers of camera film, Fuji and Kodak. Consumers want a film that accurately reproduces colour ad is not grainy. Assume that initially, they had products that were comparable. If one does R & D and improves its product, it will steal customers from its rival. If they both do R & D, and develop comparable products, then they will continue to share the market as before. Thus, the hypothetical payoff matrix (in millions of dollars) appears as below (the profits in the case of research take into account the expenditures on research). What is the Nash equilibrium of this game?

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