Two major soft drink companies, ColaCo and FizzCorp, are deciding whether to launch a new advertising campaign to increase market share. If both companies choose to advertise, they will split the market but incur high costs. If neither advertises, they maintain current market shares with no additional costs. If one advertises while the other does not, the advertising company gains a significant market share. How should each company strategize according to game theory principles, particularly considering the concept of Nash equilibrium?

In this situation, ColaCo and FizzCorp are facing a decision that can be analyzed using game theory, particularly the concept of Nash equilibrium. If both companies decide to advertise, they will share the market but at a high cost, which is not the best outcome for either. If neither advertises, they keep their current market share without any costs, which is a stable situation. However, if one company advertises while the other does not, the advertising company will capture a larger market share, leading to a competitive advantage. The Nash equilibrium occurs when both companies choose not to advertise, as this strategy leads to a stable outcome where neither has an incentive to change their decision unilaterally.