An Example of Duopoly Nash Equilibrium
Not what you're looking for?
Companies A and B are the only competitors in the market. Each has to decide what price to set for its product. Once prices are set, they cannot be changed for the year. Both firms set prices at the same time.
The options for setting price are the same for both firms: $8,000 or $4,000.
If Firm A and B both set price at $4,000: A's payoff is $10 million and B's payoff is $10 million.
If Firm A and B both set price at $8,000: A's payoff is $4 million and B's payoff is $5 million.
If Firm A sets price at $4,000 and B sets price at $8,000: A's payoff is -$4 million and B's payoff is $8 million.
If Firm B sets price at $4,000 and A sets price at $8,000: B's payoff is -$4 million and A's payoff is $8 million.
What is the Nash Equilibrium?
The answer is set both A and B at $8,000. How do you get to this answer?
Purchase this Solution
Solution Summary
A simple solution mechanism to find the Nash Equilibrium in a two player game.
Solution Preview
There are two players in the game: Company A and Company B. Both have two possible actions: set price at $4000, or set price at $8000. The best way to find the Nash equilibrium of the game is to first form the game matrix. Assuming the first element in each cell is Company A's payoff and that in the second is Company B's payoff, the game matrix can be drawn as
Company B
...
Purchase this Solution
Free BrainMass Quizzes
Pricing Strategies
Discussion about various pricing techniques of profit-seeking firms.
Economics, Basic Concepts, Demand-Supply-Equilibrium
The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.
Basics of Economics
Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.
Elementary Microeconomics
This quiz reviews the basic concept of supply and demand analysis.
Economic Issues and Concepts
This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.