3 ms·
Your first description isn't a Nash equilibrium because you're considering second-order effects (you're considering the reaction of other players to your change
by argonaut 10y ago
Your first description isn't a Nash equilibrium because you're considering second-order effects (you're considering the reaction of other players to your changes), when Nash equilibrium only concerns itself with first-order effects - you assume other players do not change and if under that assumption every player is at the best action already, then you're in a Nash equilibrium.
I don't think cable companies are at a Nash equilibrium, but they may be at other forms of equilibrium that I'm not familiar with. Also this game is iterated so there are other (crucial) dynamics at play that I am not familiar with.
- en4bz 10y agoGood point. Subgame perfect Nash equilibrium [1] would be more accurate since it applies to dynamic games. [1] https://en.wikipedia.org/wiki/Subgame_perfect_equilibrium https://en.wikipedia.org/wiki/Subgame_perfect_equilibrium
- nerdponx 10y agoIt's not Nash equilibrium, but this is a standard result in industrial organization. Companies "collude" by threatening to start price wars. The threat of a price war is enough deterrent to prevent anyone from undercutting anyone else.