Simultaneous Games and Some Specific Examples

Abdul Quadir
XLRI

16 December, 2019
Reading: Dixit and Skeath, Chapter 4 and 5
Nash Equilibrium

I Let us consider the following game:

L C R
T (0,6) (6,0) (4,3)
M (6,0) (0,6) (4,3)
B (3,3) (3,3) (5,5)
I There is no dominated strategy in this game.
I How can we predict the outcome of this game?
I We require a concept of stability to solve this sort of games.
Nash Equilibrium
Consider the following thought process:
I If Player 2 knows that Player 1 will choose T , he will choose
L (his best response to T ).
I If Player 1 knows that Player 2 will choose L, he will choose
M (his best response to L).
I If Player 2 knows that Player 1 will choose M, he will choose
C (his best response to M).
I If Player 1 knows that Player 2 will choose C , he will choose
T (his best response to C ).
I If Player 2 knows that Player 1 will choose B, he will choose
R (his best reply to B).
I If Player 1 knows that Player 2 will choose R, he will choose
B (his best reply to R).
I Suppose Player 2 plays R, then B is the best strategy for
Player 1.
I Thus, (B, R) satisfies a stability property.
I In other words, no player has a profitable deviation if the
players choose (B, R).
Nash Equilibrium
Consider the following thought process:
I If Player 2 knows that Player 1 will choose T , he will choose
L (his best response to T ).
I If Player 1 knows that Player 2 will choose L, he will choose
M (his best response to L).
I If Player 2 knows that Player 1 will choose M, he will choose
C (his best response to M).
I If Player 1 knows that Player 2 will choose C , he will choose
T (his best response to C ).
I If Player 2 knows that Player 1 will choose B, he will choose
R (his best reply to B).
I If Player 1 knows that Player 2 will choose R, he will choose
B (his best reply to R).
I Suppose Player 2 plays R, then B is the best strategy for
Player 1.
I Thus, (B, R) satisfies a stability property.
I In other words, no player has a profitable deviation if the
players choose (B, R).
Nash Equilibrium
Consider the following thought process:
I If Player 2 knows that Player 1 will choose T , he will choose
L (his best response to T ).
I If Player 1 knows that Player 2 will choose L, he will choose
M (his best response to L).
I If Player 2 knows that Player 1 will choose M, he will choose
C (his best response to M).
I If Player 1 knows that Player 2 will choose C , he will choose
T (his best response to C ).
I If Player 2 knows that Player 1 will choose B, he will choose
R (his best reply to B).
I If Player 1 knows that Player 2 will choose R, he will choose
B (his best reply to R).
I Suppose Player 2 plays R, then B is the best strategy for
Player 1.
I Thus, (B, R) satisfies a stability property.
I In other words, no player has a profitable deviation if the
players choose (B, R).
Nash Equilibrium
Consider the following thought process:
I If Player 2 knows that Player 1 will choose T , he will choose
L (his best response to T ).
I If Player 1 knows that Player 2 will choose L, he will choose
M (his best response to L).
I If Player 2 knows that Player 1 will choose M, he will choose
C (his best response to M).
I If Player 1 knows that Player 2 will choose C , he will choose
T (his best response to C ).
I If Player 2 knows that Player 1 will choose B, he will choose
R (his best reply to B).
I If Player 1 knows that Player 2 will choose R, he will choose
B (his best reply to R).
I Suppose Player 2 plays R, then B is the best strategy for
Player 1.
I Thus, (B, R) satisfies a stability property.
I In other words, no player has a profitable deviation if the
players choose (B, R).
Nash Equilibrium
Consider the following thought process:
I If Player 2 knows that Player 1 will choose T , he will choose
L (his best response to T ).
I If Player 1 knows that Player 2 will choose L, he will choose
M (his best response to L).
I If Player 2 knows that Player 1 will choose M, he will choose
C (his best response to M).
I If Player 1 knows that Player 2 will choose C , he will choose
T (his best response to C ).
I If Player 2 knows that Player 1 will choose B, he will choose
R (his best reply to B).
I If Player 1 knows that Player 2 will choose R, he will choose
B (his best reply to R).
I Suppose Player 2 plays R, then B is the best strategy for
Player 1.
I Thus, (B, R) satisfies a stability property.
I In other words, no player has a profitable deviation if the
players choose (B, R).
Nash Equilibrium
Consider the following thought process:
I If Player 2 knows that Player 1 will choose T , he will choose
L (his best response to T ).
I If Player 1 knows that Player 2 will choose L, he will choose
M (his best response to L).
I If Player 2 knows that Player 1 will choose M, he will choose
C (his best response to M).
I If Player 1 knows that Player 2 will choose C , he will choose
T (his best response to C ).
I If Player 2 knows that Player 1 will choose B, he will choose
R (his best reply to B).
I If Player 1 knows that Player 2 will choose R, he will choose
B (his best reply to R).
I Suppose Player 2 plays R, then B is the best strategy for
Player 1.
I Thus, (B, R) satisfies a stability property.
I In other words, no player has a profitable deviation if the
players choose (B, R).
Nash Equilibrium
Consider the following thought process:
I If Player 2 knows that Player 1 will choose T , he will choose
L (his best response to T ).
I If Player 1 knows that Player 2 will choose L, he will choose
M (his best response to L).
I If Player 2 knows that Player 1 will choose M, he will choose
C (his best response to M).
I If Player 1 knows that Player 2 will choose C , he will choose
T (his best response to C ).
I If Player 2 knows that Player 1 will choose B, he will choose
R (his best reply to B).
I If Player 1 knows that Player 2 will choose R, he will choose
B (his best reply to R).
I Suppose Player 2 plays R, then B is the best strategy for
Player 1.
I Thus, (B, R) satisfies a stability property.
I In other words, no player has a profitable deviation if the
players choose (B, R).
Nash Equilibrium
Consider the following thought process:
I If Player 2 knows that Player 1 will choose T , he will choose
L (his best response to T ).
I If Player 1 knows that Player 2 will choose L, he will choose
M (his best response to L).
I If Player 2 knows that Player 1 will choose M, he will choose
C (his best response to M).
I If Player 1 knows that Player 2 will choose C , he will choose
T (his best response to C ).
I If Player 2 knows that Player 1 will choose B, he will choose
R (his best reply to B).
I If Player 1 knows that Player 2 will choose R, he will choose
B (his best reply to R).
I Suppose Player 2 plays R, then B is the best strategy for
Player 1.
I Thus, (B, R) satisfies a stability property.
I In other words, no player has a profitable deviation if the
players choose (B, R).
Nash Equilibrium
Consider the following thought process:
I If Player 2 knows that Player 1 will choose T , he will choose
L (his best response to T ).
I If Player 1 knows that Player 2 will choose L, he will choose
M (his best response to L).
I If Player 2 knows that Player 1 will choose M, he will choose
C (his best response to M).
I If Player 1 knows that Player 2 will choose C , he will choose
T (his best response to C ).
I If Player 2 knows that Player 1 will choose B, he will choose
R (his best reply to B).
I If Player 1 knows that Player 2 will choose R, he will choose
B (his best reply to R).
I Suppose Player 2 plays R, then B is the best strategy for
Player 1.
I Thus, (B, R) satisfies a stability property.
I In other words, no player has a profitable deviation if the
players choose (B, R).
Nash Equilibrium
Consider the following thought process:
I If Player 2 knows that Player 1 will choose T , he will choose
L (his best response to T ).
I If Player 1 knows that Player 2 will choose L, he will choose
M (his best response to L).
I If Player 2 knows that Player 1 will choose M, he will choose
C (his best response to M).
I If Player 1 knows that Player 2 will choose C , he will choose
T (his best response to C ).
I If Player 2 knows that Player 1 will choose B, he will choose
R (his best reply to B).
I If Player 1 knows that Player 2 will choose R, he will choose
B (his best reply to R).
I Suppose Player 2 plays R, then B is the best strategy for
Player 1.
I Thus, (B, R) satisfies a stability property.
I In other words, no player has a profitable deviation if the
players choose (B, R).
Best Responses of players
I There are no dominant and dominated strategies in many
games.
I How can you predict the outcome of these games?
I We require more subtle argument to solve these games.
I The method which we use is known as best response
analysis.
I This method will produce the Nash equilibrium.
I Compute the best choice for yourself for each choices that
other players might make.
I These best strategies in response to other players’ strategies
are known as best responses.
I In this way, we compute the best strategies of each players.
I Note that mathematically your best response is a
function of others’ strategies.
Best Responses of players
I There are no dominant and dominated strategies in many
games.
I How can you predict the outcome of these games?
I We require more subtle argument to solve these games.
I The method which we use is known as best response
analysis.
I This method will produce the Nash equilibrium.
I Compute the best choice for yourself for each choices that
other players might make.
I These best strategies in response to other players’ strategies
are known as best responses.
I In this way, we compute the best strategies of each players.
I Note that mathematically your best response is a
function of others’ strategies.
Computation of Nash Equilibria

Consider the following game matrix:

Left Middle Right

Top 3,1 2,3 10,2
High 4,5 3,0 6,4
Low 2,2 5,4 12,3
Bottom 5,6 4,5 9,7

I If row player chooses Top, then Middle is the best response of

Column player.
I We can write this as B2 (Top) = Middle.
Computation of Nash Equilibria

Consider the following game matrix:

Left Middle Right

Top 3,1 2,3 10,2
High 4,5 3,0 6,4
Low 2,2 5,4 12,3
Bottom 5,6 4,5 9,7

I If row player chooses Top, then Middle is the best response of

Column player.
I We can write this as B2 (Top) = Middle.
Best Responses of player 1 and 2

B1 (Left) = Bottom B2 (Top) = Middle

B1 (Middle) = Low B2 (High) = Left
B1 (Right) = Low B2 (Low) = Middle
B2 (Bottom) = Right

Focus on

B1 (Middle) = Low B2 (Low) = Middle

Best Responses of player 1 and 2

B1 (Left) = Bottom B2 (Top) = Middle

B1 (Middle) = Low B2 (High) = Left
B1 (Right) = Low B2 (Low) = Middle
B2 (Bottom) = Right

Focus on

B1 (Middle) = Low B2 (Low) = Middle

Examples
I Consider the prisoner’s dilemma game:
a b
A (1,1) (5,0)
B (0,5) (4,4)
I (A, a) is a Nash equilibrium and it is also the strictly dominant
strategy equilibrium.
I Consider the coordination game:
a b
A (1,1) (0,0)
B (0,0) (3,3)
I If player 2 plays a, then B1 (a) = A and if player 1 plays A,
then B2 (A) = a.
I Thus, (A, a) is a Nash equilibrium.
I Similarly, if player 2 plays b, then B1 (b) = B and if player 1
plays B, then B2 (B) = b.
I Thus, (B, b) is another Nash equilibrium.
Examples
I Consider the prisoner’s dilemma game:
a b
A (1,1) (5,0)
B (0,5) (4,4)
I (A, a) is a Nash equilibrium and it is also the strictly dominant
strategy equilibrium.
I Consider the coordination game:
a b
A (1,1) (0,0)
B (0,0) (3,3)
I If player 2 plays a, then B1 (a) = A and if player 1 plays A,
then B2 (A) = a.
I Thus, (A, a) is a Nash equilibrium.
I Similarly, if player 2 plays b, then B1 (b) = B and if player 1
plays B, then B2 (B) = b.
I Thus, (B, b) is another Nash equilibrium.
Example: Battle of Sexes

I A man and woman deciding which movie to go between two

movies {x, Y }.
I The man likes to go for movie x and the woman likes to go
for movie Y .
I But if they end up going to separate movie, then their payoff
is (0, 0).
x x
x (2,1) (0,0)
Y (0,0) (1,2)
I We have also two equilibia in this game also.
I (x, x) and (Y , Y ) are both Nash equilibria.
Example: The Vickrey Auction (Second Price Auction)

I A seller wants to sell a single indivisible object.

I N = {1, 2, . . . , n}.
I Each buyer i has a valuation vi ∈ R+ for the object.
I Each buyer is asked to report a bid a non-negative number.
I Let us denote the bid of buyer i as bi .
I Allocate the object to the highest bidder and he will be
charged the second highest bid.
I In case of ties, all the highest bidders will get the object with
equal probability and the payment is second highest which is
their bid in this case.
I Any buyer who does not win pays zero.
I The payoff of winner if he pays pi is vi − pi .
Bidding Strategies

Lemma
In the Vickrey auction, it is a weakly dominant strategy for every
buyer to bid his value.

Proof.
Suppose for all j ∈ N \ {i}, bidder j bids an amount bj . If bidder i
bids vi , there are two cases to consider:
I Case 1: vi > maxj6=i bj . In this case, vi − maxj6=i bj > 0.
I If he bids v̂i > vi , his payoff does not change.
I If he bids v̂i < vi such that v̂i still greater than maxj6=i bj , he
will win and his payoff will not change.
I If he bids v̂i < vi such that v̂i < maxj6=i bj , he will loose the
auction and his payoff will be zero.
Proof Cont.

Proof.
I Case 2: vi < maxj6=i bj . The payoff is zero in this case.
I If he bids v̂i such that v̂i < vi , he will remain looser and his
payoff will be zero.
I If he bids v̂i > maxj6=i bj , then he will win the auction but his
payoff will be negative.
I Thus, bidding your true value is a dominant strategy.
Simultaneous-Move Games with Continuous Strategies
Price Competition

I We use the best response method for computing Nash

equilibrium.
I Suppose there two restaurants x and y .
I The cost of serving a customer is 8 rupees.
I Number of the consumers going to each restaurants depend
on the prices set by x and y both.
I Let px and py be the prices of restaurants x and y ,
respectively.
I Let us write their demand as:

Qx = 44 − 2px + py
Qy = 44 − 2py + px

I Qx and Qy are measured in hundreds per month.

Price Competition

I We use the best response method for computing Nash

equilibrium.
I Suppose there two restaurants x and y .
I The cost of serving a customer is 8 rupees.
I Number of the consumers going to each restaurants depend
on the prices set by x and y both.
I Let px and py be the prices of restaurants x and y ,
respectively.
I Let us write their demand as:

Qx = 44 − 2px + py
Qy = 44 − 2py + px

I Qx and Qy are measured in hundreds per month.

Price Competition

I What are the profit functions for x and y ?

πx = (px − 8)Qx = (px − 8)(44 − 2px + py )

πy = (py − 8)Qy = (py − 8)(44 − 2py + px )

I Calculate the best response functions of x and y .

px = 15 + 0.25py
py = 15 + 0.25px

I Plot best response function on two dimensional graph.

Price Competition

I What are the profit functions for x and y ?

πx = (px − 8)Qx = (px − 8)(44 − 2px + py )

πy = (py − 8)Qy = (py − 8)(44 − 2py + px )

I Calculate the best response functions of x and y .

px = 15 + 0.25py
py = 15 + 0.25px

I Plot best response function on two dimensional graph.

Price Competition

I What are the profit functions for x and y ?

πx = (px − 8)Qx = (px − 8)(44 − 2px + py )

πy = (py − 8)Qy = (py − 8)(44 − 2py + px )

I Calculate the best response functions of x and y .

px = 15 + 0.25py
py = 15 + 0.25px

I Plot best response function on two dimensional graph.

Best Response Graph
py
px = 15 + 0.25py

py = 15 + 0.25px

15

15 px
Example
I For this example, we have got best response curves as straight
lines.
I But the same procedure will be applied for any best response
curves.
I The point of intersection of these straight lines is the Nash
equilibrium.
I Therefore, solving the best response functions simultaneously
yields
px∗ = 20, py∗ = 20
I Therefore, in equilibrium both the restaurants charge 20
rupees as prices.
I The profit for their menu is 12 rupees.
I Total number of customer served in each month is
Qx = (44 − 2 × 20 + 20) × 100 = 2400
I Total profit: 2400 × 12 = 28, 800 rupees.
Cooperation versus Competition

I Observe closely the best response functions of the restaurants.

I They are increasing upwards.
I This implies that as one restaurant raises its price by 1 rupee,
it also raises other restaurant’s price by 25 paisa.
I Note also that the restaurant which raises its price loses some
of its customer.
I The other restaurant which attracts them benefit by raising
its price a little bit on the way.
I Thus, a restaurant which raises its price also helps in
increasing its rivals profit.
I In Nash equilibrium, they do not care about this aspect.
I The question is: Can they get together and cooperatively
agree to raise their prices?
Cooperation versus Competition

I Observe closely the best response functions of the restaurants.

I They are increasing upwards.
I This implies that as one restaurant raises its price by 1 rupee,
it also raises other restaurant’s price by 25 paisa.
I Note also that the restaurant which raises its price loses some
of its customer.
I The other restaurant which attracts them benefit by raising
its price a little bit on the way.
I Thus, a restaurant which raises its price also helps in
increasing its rivals profit.
I In Nash equilibrium, they do not care about this aspect.
I The question is: Can they get together and cooperatively
agree to raise their prices?
Cooperation versus Competition
I The answer is yes.
I Suppose they agree to fix their price 24 rupees.
I Then the profit per customer is 16.
I Now Qx = (44 − 2 × 24 + 24) × 100 = 2000
I Total profit is 2000 × 16 = 32, 000 rupees more than Nash
equilibrium profit.
I Note that this pricing game is exactly like the prisoner’s
dilemma game.
I But 24 rupees is sustainable as Nash equilibrium.
I Suppose x is charging 24, then y will charge
15 + 0.25 × 24 = 21.
I Then x will charge 15 + 0.25 × 21 = 20.25
I If you continue this way, the price will converge to 20 rupees
eventually.
Collusion Equilibrium
I What is best joint price for both the restaurants?
I Suppose both charges the same price p, then the profit
function for each restaurant is
πx = πy = (p − 8)(44 − 2p + p) = (p − 8)(44 − p)
I The FOC implies that
p ∗ = 26
I Total profit for each restaurant is
(26 − 8)(44 − 26) = 18 × 18 = 324 × 100 = 32, 400.
I The cartel price and profit is high. Bad for consumers.
I Does collusion always hurt the consumers?
I For substitute goods like in our example, it will hurt the
consumers.
I However, for complement goods like software and hardware
collusion leads in reduction of prices.
I Hence, good for the consumers.
Collusion Equilibrium
I What is best joint price for both the restaurants?
I Suppose both charges the same price p, then the profit
function for each restaurant is
πx = πy = (p − 8)(44 − 2p + p) = (p − 8)(44 − p)
I The FOC implies that
p ∗ = 26
I Total profit for each restaurant is
(26 − 8)(44 − 26) = 18 × 18 = 324 × 100 = 32, 400.
I The cartel price and profit is high. Bad for consumers.
I Does collusion always hurt the consumers?
I For substitute goods like in our example, it will hurt the
consumers.
I However, for complement goods like software and hardware
collusion leads in reduction of prices.
I Hence, good for the consumers.
Collusion Equilibrium
I What is best joint price for both the restaurants?
I Suppose both charges the same price p, then the profit
function for each restaurant is
πx = πy = (p − 8)(44 − 2p + p) = (p − 8)(44 − p)
I The FOC implies that
p ∗ = 26
I Total profit for each restaurant is
(26 − 8)(44 − 26) = 18 × 18 = 324 × 100 = 32, 400.
I The cartel price and profit is high. Bad for consumers.
I Does collusion always hurt the consumers?
I For substitute goods like in our example, it will hurt the
consumers.
I However, for complement goods like software and hardware
collusion leads in reduction of prices.
I Hence, good for the consumers.
Rationalizability

I Calculation of Nash equilibrium depends on the following two

factors:
I Compute your best choice given your belief about others’
choices.
I The belief of each player must be correct. (convergence of
expectation)
I Can we justify strategic choices made by player on the basis of
rationality alone?
I The answer is no. See the following example:
L C R
T 0,7 2,5 7,0
M 5,2 3,3 5,2
B 7,0 2,5 0,7
I All nine outcomes are logically conceivable.
Rationalizability

I Calculation of Nash equilibrium depends on the following two

factors:
I Compute your best choice given your belief about others’
choices.
I The belief of each player must be correct. (convergence of
expectation)
I Can we justify strategic choices made by player on the basis of
rationality alone?
I The answer is no. See the following example:
L C R
T 0,7 2,5 7,0
M 5,2 3,3 5,2
B 7,0 2,5 0,7
I All nine outcomes are logically conceivable.
Rationalizability

I Recall that a rational player will not play dominated strategies.

I We can get a similar notion known as never a best response.
I A rational player will not play never a best response.
I Therefore, we can narrow down the set of strategies using this
concept.
I The set of strategies that survive elimination on this ground
are called rationalizable.
I The concept is known as rationalizability.
Example: Rationalizability

I Consider the following game:

L C R
T (3,3) (0,0) (0,2)
M (0,0) (3,3) (0,2)
B (2,2) (2,2) (2,0)
I Note that R is never a best response for column Player and B
is never a best response for row Player.
I The reduces game will look like
L C
T (3,3) (0,0)
M (0,0) (3,3)
Example: Rationalizability

I Consider the following game:

L C R
T (3,3) (0,0) (0,2)
M (0,0) (3,3) (0,2)
B (2,2) (2,2) (2,0)
I Note that R is never a best response for column Player and B
is never a best response for row Player.
I The reduces game will look like
L C
T (3,3) (0,0)
M (0,0) (3,3)
Quantity Competition Between Two Firms

I Consider two firms which produce identical products.

I The price depends on what they produce p = 60 − (q1 + q2 )
I Per unit cost of production is 30 and 36 for firm 1 and 2,
respectively.
I Both the firms are profit maximizer.
I Compute the Nash equilibrium for this game.
I Their profit functions are given by

π1 (q1 , q2 ) = (60 − q1 − q2 )q1 − 30q1

u2 (q1 , q2 ) = (60 − q1 − q2 )q2 − 36q2
Quantity Competition Between Two Firms

I Consider two firms which produce identical products.

I The price depends on what they produce p = 60 − (q1 + q2 )
I Per unit cost of production is 30 and 36 for firm 1 and 2,
respectively.
I Both the firms are profit maximizer.
I Compute the Nash equilibrium for this game.
I Their profit functions are given by

π1 (q1 , q2 ) = (60 − q1 − q2 )q1 − 30q1

u2 (q1 , q2 ) = (60 − q1 − q2 )q2 − 36q2
Quantity Competition Between Two Firms
I Given q2 , firm 1 can maximize its profit by maximizing π1
over q1 .
I F.O.C. implies that

60 − 2q1 − q2 − 30 = 0.

I The best response function for firm 1

q2
q1 = 15 − .
2
I Similarly, the best response function for firm 2
q1
q2 = 12 −
2
I Solving these two equations, we have

q1∗ = 12, q2∗ = 6, p ∗ = 42 π1 = 144, π2 = 36

Best Response Curves
q2

30

q2
q1 = 15 − 2

12

q1
q2 = 12 − 2

15 24 q1
Rationalizability: Quantity Competition Between Two
Firms
I First round: what are the rational beliefs of firm 1 and 2 for
their production ranges?
I From the graph, we see that q1 ∈ [0, 15].
I Thus, firm 2 believes that any negative number or higher than
15 is not possible for firm 1.
I Similarly, q2 ∈ [0, 12] and firm 1 believes that firm 2 will not
produce any negative or higher quantity than 12.
I Second round: Since firm 1 has concluded that firm 2 will not
produce more than 12, then firm 1’s production is
q1 = 15 − 12
2 = 9.
I The best response for q2 = 0 is 15.
I Thus, firm 1’s choice is restricted to the range of [9, 15].
I Similarly, firm 2’s production is restricted to [12, 4.5] to the
best response of q1 = 0 and q1 = 15.
Rationalizability: Quantity Competition Between Two
Firms
I First round: what are the rational beliefs of firm 1 and 2 for
their production ranges?
I From the graph, we see that q1 ∈ [0, 15].
I Thus, firm 2 believes that any negative number or higher than
15 is not possible for firm 1.
I Similarly, q2 ∈ [0, 12] and firm 1 believes that firm 2 will not
produce any negative or higher quantity than 12.
I Second round: Since firm 1 has concluded that firm 2 will not
produce more than 12, then firm 1’s production is
q1 = 15 − 12
2 = 9.
I The best response for q2 = 0 is 15.
I Thus, firm 1’s choice is restricted to the range of [9, 15].
I Similarly, firm 2’s production is restricted to [12, 4.5] to the
best response of q1 = 0 and q1 = 15.
Rationalizability: Quantity Competition Between Two
Firms

I Third round: If firm 1’s production is q1 = 9,

q2 = 12 − 29 = 7.5.
4.5
I If q2 = 4.5, then q1 = 15 − 2 = 12.75
I Thus, firm 1’ restricted production range now is [9, 12.75]
I In this way the successive round will eventually give you
q1 = 12 and q2 = 6.
Rationalizability
q2

30

q2
q1 = 15 − 2

12

7.5
4.5 q1
q2 = 12 − 2

9 12.7515 24 q1
Rationalizability
q2

30

q2
q1 = 15 − 2

12

7.5
4.5 q1
q2 = 12 − 2

9 12.7515 24 q1
Matching Pennies

I Matching Pennies:
I Consider two players whose payoffs add to zero.
I Consider two players toss two coins. If it matches H and H or
T and T , then Player 1 is paid Rs.1 by Player 2.
I Otherwise, Player 2 is paid Rs, 1 by player 1.
h t
H (1,-1) (-1,1)
T (-1,1) (1,-1)
I Is there any Nash equilibrium for this game?
I There is no pure strategy Nash equilibrium.