What are some examples of Nash Equilibrium in business?

What are some examples of Nash Equilibrium in business?

Nash Equilibrium occurs when firms choose strategies that are optimal, given the strategies of other firms. A classic example is in pricing strategies between two competing companies.

Can you give me a specific example?

Sure! Consider two coffee shops located across the street from each other. If both set their prices too high, they may lose customers to each other. If they both set prices too low, they may not cover costs. The Nash Equilibrium occurs when both shops set their prices at a level where neither can benefit by changing their price alone.

What happens if one coffee shop decides to lower its prices?

If one coffee shop lowers its prices, it may attract more customers, but the other shop might respond by lowering its prices too. This could lead to a price war, ultimately reducing profits for both.

Are there other industries where Nash Equilibrium applies?

Yes, Nash Equilibrium can be observed in various industries, such as telecommunications, where companies decide on pricing plans, or in advertising, where firms choose how much to spend based on competitors' spending.