So here we are faced with a situation of two Nash Equilibria.
Okay? So, for example one of the
real life cases that was looking at precisely such a situation was Sony and
Phillips. When they started developing the compact
disc in the late 1970s and early 80s, both of them knew they wanted to
standardize, but it was difficult to see which of the two standards was going to
be chosen. Sony, of course, wanted to get as much as
possible of their own standard into the system.
Phillips wanted to build as much of their own system into the standard.
In the end they ended with a sort of combination of both and were very
successful. So the CD was one of the most successful
introductions in consumer electronics. So we've just learned about the Nash
Equilibrium as the natural resting point of the game.
So at this point, in a Nash Equilibrium, no player can gain higher payoffs by
playing another strategy. So, in a competitive situation, we would
expect two rational rivals to choose their strategies such that they will end
up in a Nash Equilibrium. So, of course, in some situations, there
may be no Nash Equilibrium at all, as we've seen in the game of football and
soccer. In other settings, we have two or even
more Nash Equilibria. So, what's interesting there is that, how
do we select? How do we solve these sorts of games?
So in the next video, we'll have a closer look at these kinds of games.
But first, do have a look at the following game, and put down how many
Nash Equilibria there are.
Okay? Thanks very much, and see you very soon.