If Firm 2 believed Firm 1 would stick with High Firm 2 would wish to switch to High, indicated by the arrow. Likewise, if Firm 1 thought Firm 2 would stick with Low it would switch to Low as shown by the other arrow.

   Firm 1 High, Firm 2 Low cannot possibly be a Nash equilibrium since at least one (both in this case) of the players would wish to change strategies unilaterally. In other words, they would change strategies even if the other did not, so clearly this is outcome doesn't fit any sort of equilibrium idea.

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