Now let's consider Firm 1 Low, Firm 2 High as a possible Nash equilibrium. We can easily see that, if Firm 1 believed Firm 2 would play High it would like to switch to High as well, hence the arrow. This is enough to tell us that this outcome isn't a Nash equilibrium, if even one player would change her strategy if the other did not the outcome can't be an equilibrium.

   As it turns out, if Firm 2 believed Firm 1 would play Low it would like to switch to High, as the arrow shows. This too would be sufficient evidence to convince us this isn't an equilibrium outcome.

Click Here if you don't see topics listed to the left and below.

Copyright © 1995-2005 OnLineTexts.com, Inc. - All Rights Reserved