However, if they both invest in new technology, which will become new market standard, they will both get substantially better pay off (a) with $200 each.

In this example, if neither firms invest, they will make $50 each.

Therefore, there is strong incentive to avoid price war. Therefore, the firm who loses out will almost certainly retaliate and the outcome will move to (d) with both firms just making $3 profit. However, the other firm who keeps prices high will lose market share and get zero profits. However, when prices are stable, if one firm cuts prices (starts price war) it will see profits rise to $60. The best outcome for both firms is (a) $40, $40.

This is a similar outcome but for two firms that can keep prices high and stable or start a price war.

Both players could gain from co-operation.

A Nash equilibrium is not necessarily pareto efficient. Nash equilibrium – where each player has nothing to gain by changing strategy, given the choices of the other player.Dominant strategy – when one choice gives better result than other.What the opponent does also depends upon what he thinks the first player will do. (This section has been updated by LinkedIn editors based on member feedback.Game study is the study of strategic interaction where one player’s decision depends on what the other player does.

For example, if a voter has to choose between two candidates, and they are indifferent or unsure about them, they might use a mixed strategy, such as flipping a coin or following a poll, to indicate their indifference or uncertainty. Third, they can help players to express their preferences or beliefs, when they are uncertain or incomplete. Second, they can help players to achieve a fair or efficient outcome, when there is no pure strategy that dominates or guarantees it. However, if the seller sometimes sets a low price, the buyer might be more willing to buy it or offer a higher price. For example, if a seller always sets a high price for a product, a buyer might refuse to buy it or offer a low price. First, they can help players to avoid being exploited by their opponents, who might anticipate their pure strategies and respond accordingly. Mixed strategies can be useful in bargaining games for several reasons.

Game of chicken real life examples