Your boss has become interested in the analysis of strategic competition and recently read a book about game theory. He remembers from it that "Nash equilibrium" describes a kind of stable arrangement that we might expect to play out between two rivaling firms. As it happens, the investment firm you both work for is currentiy trying to assess whether to buy a stake in the software firm Tech Giant, It sells a video editor that places peopie in their favorite movie scenes. A rival, Clipsy, has a very similar product. Like Tech Giant, Clipsy spent S1 milion on the development the product. Fortunately, both firms can make and sell additional copies without further expenses. It is clear that potential users will choose between these two editing softwares based on price. Since the companies use the same distribution channels, it can be assumed that each would capture half the market if they set the same price. Your boss believes that the concept of Nash equilibrium implies that Tech Giant can take advantage of the cost structure to undercut Clipsy's price, capture the entire market, and make a high profit. Do you agree? No, since they have the same costs, and the cost of additional copies is zero, they will both distribute the software for free in Nash equilibrium and lose their development expenses. No, they will both charge the same price in Nash equilibrium, and the price will be high enough so that each can cover its development expenses. Yos, in any Nash equilibrium, Tech Giant would charge a lower price than Clipoy, since it has no additional costs from selling copies of the soffware. There is a Nash equilibrium where Toch Giant undercuts Clipsy, but there is also a Nash equilibium where Clipsy undercuts Tech Giant. It depends on who plays more aggressively