Question

Suppose that there are customers distributed evenly across a line which runs from 0 to 1. There are two competing vendors that choose where on the line to locate Customers buy from whichever vendor is closest to their location. What is the Nash equilibrium?

a.(0, 1)
b.(1/2, 1/2)
c.(1/3, 2/3)
d.There is no nash equilibrium.

Answer 1

b.(1/2, 1/2)

Step-by-step explanation:

If one vendor is located at “1/2” then the best possible respond of the other vendor is “1/2”, both of them of capture the equal share of the market.

Therefore, Nash equilibrium is (1/2 , 1/2).