In Chapter 12, we used the Nash equilibrium to study output and pricing by
oligopolistic firms. In the Cournot model, for example, each firm sets its own
output while taking the outputs of its competitors as fixed. We saw that in a
Cournot equilibrium, no firm has an incentive to change its output unilaterally
because each firm is doing the best it can given the decisions of its competitors.
Thus a Cournot equilibrium is a Nash equilibrium.6
We also examined models
in which firms choose price, taking the prices of their competitors as fixed.
Again, in the Nash equilibrium, each firm is earning the largest profit it can
given the prices of its competitors, and thus has no incentive to change its price.
It is helpful to compare the concept of a Nash equilibrium with that of an
equilibrium in dominant strategies:
In Chapter 12, we used the Nash equilibrium to study output and pricing byoligopolistic firms. In the Cournot model, for example, each firm sets its ownoutput while taking the outputs of its competitors as fixed. We saw that in aCournot equilibrium, no firm has an incentive to change its output unilaterallybecause each firm is doing the best it can given the decisions of its competitors.Thus a Cournot equilibrium is a Nash equilibrium.6 We also examined modelsin which firms choose price, taking the prices of their competitors as fixed.Again, in the Nash equilibrium, each firm is earning the largest profit it cangiven the prices of its competitors, and thus has no incentive to change its price.It is helpful to compare the concept of a Nash equilibrium with that of anequilibrium in dominant strategies:
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