Nash Equilibrium

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Nash Equilibrium

Named after the US economist and Nobel Prize winner John Nash Equilibrium is equilibrium in which each firm's best strategy is to maintain its present behaviour, given the present behaviour of other firms. If Nash Equilibrium is established – by any means whatsoever – no firm has an incentive to depart from it by altering its own behaviour. It is self – policing.” This is because the Nash Equilibrium is attained only when each firm acts strategically by choosing a strategy taking into account what the other firms may do. Once Nash Equilibrium is attained, no firm can improve its position given the other firms’ strategy and therefore no firm has any incentive to depart from this position. Thus, Nash Equilibrium is based on rational decisional decision – making in absence of cooperation Nash Equilibrium is thus a competitive solution to the problem of oligopoly.


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