00:01
So let's talk about the nash equilibrium.
00:12
This is also known as non -cooperative equilibrium.
00:29
Each player in a game will choose the action that maximizes his or her payoff given the actions of other players.
00:35
So we have a duopoly.
01:23
We have firms a and b and they can either sell at a high or low price.
01:51
So selling at a high price a will get a thousand dollars and b will also get a thousand dollars.
02:02
If a sells at a high price a is going to get one thousand five hundred dollars and b will get eight hundred dollars if it sells at a low price.
02:18
Firm a selling at a low price is going to get eight hundred dollars.
02:25
B is going to get one thousand five hundred dollars.
02:31
Both of them selling at a low price a will get one thousand two hundred fifty and then b is also going to get one thousand two hundred fifty.
02:46
So this is non -cooperative equilibrium.
02:49
They're not going to consider the other firm.
02:54
If firm a charges high prices firm b would charge a high price.
03:03
So looking at this first row b is going to charge the high price to get the a thousand.
03:20
If firm a charges a low price firm b is going to charge a high price.
03:26
It gives them a profit of one thousand five hundred versus one thousand two hundred fifty.
03:36
So based off of what a does b is always going to do the thing that will give it the highest price.
03:49
Dominant strategy of firm b is to charge the high price no matter what a does.
03:55
Then let's say b charges high prices.
04:35
Firm a is also going to charge a high price because it will give firm a a thousand dollars versus eight hundred dollars...