Consider a monopoly with price power in the market and the demand is a function of price. Can the result of such a monopoly problem be called a nash equilibrium?


1 Answer 1


In a somewhat degenerate way, yes. The specified demand function is a trivial case of a best response function describing the optimal quantity demanded for any given price of the monopolist. The monopolist's optimal profit-maximizing price in turn is the best response facing this demand. So you end up with a Nash equilibrium, where each player plays his/her best response and the choices are mutually consistent. Put differently, no player has any incentive to deviate.

  • $\begingroup$ Relatedly, one can have also a competitive market where the monopolist price is a Nash equilibrium. See the Diamond paradox from industrial organization, where there are nonnegligible search costs to finding the best price. $\endgroup$ Mar 2, 2022 at 21:10
  • $\begingroup$ Why is this »degenerate« ... whatever that means in an economic context? $\endgroup$ Mar 3, 2022 at 15:03
  • $\begingroup$ Because I would not consider this your typical case of the intersection of two fully-fledged best response functions. $\endgroup$
    – jpfeifer
    Mar 4, 2022 at 17:55

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.