If two competing firms both choose to advertise heavily in a market, leading to reduced profit margins for each, what underlying reason explains why this outcome occurs despite both firms attempting to maximize their individual profits?

When two competing firms decide to advertise heavily, they are trying to attract more customers and increase their sales. However, this can lead to a situation where both firms spend a lot of money on advertising, which raises costs and lowers profits for each firm. The reason this happens is that both firms are focused on their own individual profits without considering how their actions affect each other. For example, if Firm A spends a lot on advertising to gain market share, Firm B might feel pressured to do the same, resulting in both firms having higher expenses and lower profit margins. This situation illustrates a concept in game theory called the "prisoner's dilemma," where cooperating would lead to better outcomes for both, but individual choices lead to worse results.