You are managing a firm (Firm1) that faces a single large competitor (Firm 2). A recent technology has been developed that you can use to attract more customers and increase your revenue, without a substantial increase in marginal cost. If you implement the technology early, it will be more expensive, but you can gain some market share (and more profits) on the competitor if you deploy the product before the competitor. You estimate that profits will increase by $500,000. On the other hand, if the large firm implements early when you do, your market share stays the same but you lose money because of the high costs, leading to an estimated $100,000 loss. If you delay, your profit also depends on whether the large firm implements early. If the competitor does implement before you, you will lose $200,000. If you both delay, you will ultimately earn an additional $100,000.
Your competitor faces a similar decision. If you both implement early, it loses $400,000 because of the high costs. If it implements early but you delay, it earns $200,000. If the competitor delays while you implement early, it loses $200,000. If you both delay, it earns an additional $300,000.
What strategy do you choose and why? Is it stable?