https://techcrunch.com/2019/05/08/a-beautiful-duopoly/
The article is an interesting look at how we can use the concept of Nash Equilibrium in the application of two companies dominating a certain market, a concept formally known as the Bertrand duopoly. We can see in this application that with a Bertrand duopoly, there is a profile of strategies where each competitor’s strategy is the best response to the other since making tactical decisions for one’s business results in certain payoffs. There is therefore a point where neither competitor would gain anything by changing their marketing/business strategies, which is a point of Nash Equilibrium like we discussed in class. Each company will then have no reason to change their existing marketing and business strategies.
The overarching example used in this article is that of the competition between Uber and Lyft. Both companies can increase their marketing until they have nothing to gain over each other (i.e. reaching a Nash equilibrium). We also have the concept of mixed strategies due to the two companies knowing most things about the outcome of their actions. They can therefore act on each other’s preferences and payoffs, also assigning a level of probability to the response of their opponent. Eventually, the game should reach Nash equilibrium as the competitors become more informed of their decisions and responses. The ability to make calculated decisions when making mixed strategy decisions is extremely important to discuss what business strategies to take.
As discussed above, we can therefore draw tables for Uber and Lyft like we did in class in order to compare the payoffs of implementing different market strategies or introducing new technology (like a self-driving feature). We can then see that Network Theory is extremely useful in its applications, particularly being able to explain an ongoing relationship between two important and relevant companies battling for market supremacy.