Firm 1 -Two Software Firms Have Developed an Identical New Software Application

question 233

Multiple Choice

Firm 1
-Two software firms have developed an identical new software application. They are debating whether to give the new application 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 Firm 1's best strategy?

• A) Give away the application regardless of what Firm 2 does.
• B) Sell the application at $30 a copy regardless of what Firm 2 does.
• C) Give away the application only if Firm 2 sells the application.
• D) Give away the application only if Firm 2 gives away the application.

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