http://www.usnews.com/blogs/daves-download/2008/02/19/sonys-blu-ray-beats-toshibas-hd-dvd.html

http://gear.ign.com/articles/852/852769p1.html

On January 19^th Toshiba officially conceded victory in the two year war between its own HD-DVD and Sony’s Blu-ray. Just a few months ago it seemed that HD-DVD and Blu-ray were dead even. Toshiba had acquired the exclusive support of both DreamWorks and Paramount and had a considerable price advantage over Blu-ray. However, the downfall of HD-DVD was imminent after the January 5^th announcement by Warner Brothers that it was going Blu-ray exclusive, giving Sony the exclusive support of over seventy percent of major movie studies. Shortly afterward, Netflix revealed that it would be dropping the HD-DVD format from its video library, while both Best Buy and Wal-Mart threw their support behind the Blu-ray format.

The decision of Toshiba to withdraw the HD-DVD format from the market, as well as its previous decisions can be explained using game theory. Previously, the game would have appeared as it does in Scenario 1. It is a dominant strategy for both Sony and Toshiba to continue production of their formats because they would make zero profit if they ceased production no matter what the other company does. Therefore, the Nash equilibrium is at (C,C) with both companies making a profit of 1 with the hopes that in the future the other company will withdraw their product, increasing the profit to 10. However, after the announcement by Warner Brothers and the events that followed the game would appear as it does Scenario 2. If Toshiba continuous to produce the HD-DVD format they will lose money due to decreased demand for their product as represented by the -1 in the new game. Since Toshiba knows that Sony’s dominant strategy is to continue production Toshiba must choose to withdraw their format in order to minimize their loses and the new Nash equilibrium becomes (C,W).

C = Continue Production

W = Withdraw Product