Game theory- Nash Equilibrium

1. Prateek Gupta (36)

2. 
John Forbes Nash
 This concept is named after its
inventor who is an American
mathematician named John
Nash.
 He won 1994 Nobel Memorial
Prize in Economic Sciences.

3. 
 A concept of game theory where the optimal
outcome of a game is one where no player has an
incentive to deviate from his or her chosen strategy
after considering an opponent's choice.
OR
 Set of strategies or actions in which each firm does
the best it can given its competitors’ actions.
Definition

4. 
Dominant Strategies:
- I’m doing the best I can no matter what you do.
- You’re doing the best you can no matter what I do.
Nash Equilibrium:
- I’m doing the best I can given what you are doing.
- You’re doing the best you can given what I am doing.
Dominant strategies vs
Nash Equilibrium

5. 
 Oligopoly model in which firms produce a
homogeneous good, each firm treats the output of its
competitors as fixed, and all firms decide
simultaneously how much to produce.
 Since no firm has an incentive to change its output
unilaterally as each firm is doing the best it can given
the decisions of its competitors. Thus a Cournot
equilibrium is a Nash equilibrium.
Cournot Equilibrium

6. 
Example
Product choice problem: Two breakfast cereal
companies face a market in which two new
variations of cereal can be successfully introduced.

7. The Beach Location Game
You (Y) and a competitor (C) plan to sell soft drinks on a beach.
If sunbathers are spread evenly across the beach and will walk to the closest vendor, the two of you
will locate next to each other at the center of the beach. This is the only Nash equilibrium.
If your competitor located at point A, you would want to move until you were just to the left, where you
could capture three-fourths of all sales.
But your competitor would then want to move back to the center, and you would do the same.
Beach Location Game

8. Thank you