I have reviewed the response to the following question from other sites and other tutors and they seem to agree that the answer to the question bellow is: D. Yes, the current situation is a Nash equilibrium.

However, I do not understand why. If you work out the game, you find that both players have their own dominant strategy, HIGH / HIGH with payoffs of $10k and $10k. It is a Nash Equilibrium. Why would the current strategy be a Nash Equilibrium then?. I don't understand why.

The table to the right shows the payoff matrix for Wal-Mart and Target from every combination of pricing strategies for the popular PlayStation 4.

At the start of the game each firm charges a low price and each earns a profit of $7,000.

Is the current strategy in which each firm charges the low price and earns a profit of $7,000 a Nash equilibrium? If not, why and what is the Nash equilibrium?

A. No, the current situation is not a Nash equilibrium. The Nash equilibrium for each firm is to have the other charge a high price and for the firm in question charge a low price.

B. No, it is not a Nash equilibrium because each firm can do better by charging the high price. The Nash equilibrium occurs when each firm charges the high price and earns a profit of $10,000.

C. No, the current situation is not a Nash equilibrium; it is a dominant strategy equilibrium. There is no Nash equilibrium in this game.

D. Yes, the current situation is a Nash equilibrium.