Game Theory And Strategic Behavior

Game theory and strategic behaviorNash equilibrium is defined as a set of strategies that none of the players can improve their payoff, given the strategies of the other participants. Since there can be more than one equilibrium case, the actual outcome of the game depends on which action occurs first. For games in which the participants keep shifting from one strategy to another, it is highly unlikely to have Nash equilibrium. The underlying meaning behind none of the players can improve their payoff, given the strategies of the other participants means there is no incentive or a relatively lesser incentive to improve one’s payoff, given the other’s strategy.Dominant strategy: when the optimal strategy for each firm depends on the strategy selected by the other firm. But when one of the firm’s strategy does not depend on the choice made by the other’s, it is a dominant strategy.When one player has a dominant strategy, the game will always have a Nash Equilibrium as the player will always use the same and the opponent with reply with his best possible strategy.Hence, when analyzing a game (entering new markets, profit maximizations, loss minimization…) the first step is to