There is a question in Reading 13:
SigmaSoft and ThetaTech are the dominant makers of computer system software. The market has two components: a large mass-market component in which demand is price sensitive, and a smaller performance-oriented component in which demand is much less price sensitive. SigmaSoft’s product is considered to be technically superior. Each company can choose one of two strategies:
● Open architecture (Open): Mass market focus allowing other software venders to develop products for its platform.
● Proprietary (Prop): Allow only its own software applications to run on its platform.
Depending upon the strategy each company selects, their profits would be:
SigmaSoft – Open: 400
ThetaTech – Open:600
SigmaSoft – Prop: 650
ThetaTech – Open:700
SigmaSoft – Open: 800
ThetaTech – Prop:300
SigmaSoft – Prop: 600
ThetaTech – Prop:400
The Nash equilibrium for these companies is:
A proprietary for SigmaSoft and proprietary for ThetaTech.
B open architecture for SigmaSoft and proprietary for ThetaTech.
C proprietary for SigmaSoft and open architecture for ThetaTech
The correct answer is C. I’m confused. As according to Nash Equilibrium, both companies are supposed to choose the strategy that most benefits themsevles, without knowing what the other one will choose. In this case, SigmaSoft shall choose open (800 profits) and ThetaTech shall choose open too (700 profit). So in the end they shall both choose open. But this is not even an option in the answers? Can anyone please help me explain?
Thank you very much!