How Nash Equilibrium Detects Compatiton Among Lmt, Tele2 and Bite?

BBA Program

Microeconomics

Fall 2015

Anastasija Andrejeva
Eva Čekanauska
Martiņš Veisbardis
Emīls Jatnieks

Game Theory. Auctions.

“How Nash equilibrium detects compatiton among LMT, Tele2 and Bite?”

Introduction

Why this topic seems important to our group?

The growth of the mobile phone industry over the past 30 years has flourished. Nowadays humans cannot normally function without using the variety of applications and other features offered by phone manufacturers and communication providers. While the main purpose of mobile phone usage remains making calls, there are applications and communication methods offered by communication providers (such as, Spotify, Deezer) and they create a huge competition amongst the local mobile internet and communication providers.

There are 3 big communication providers in Latvia – LTD “LMT”, LTD “Tele2” and LTD “Bite Latvia” - that organizes an oligopoly with strong competition in a small country. The companies are constantly at war with each other, on presenting new services and prices, almost simultaneously, but the performance of them differs in a great manner. Our group is willing to find out the mutual competition tendencies amongst the largest communication providers in Latvia. We also want to understand the strategic planning principles of the business and how it is affected by other competitors’ behavior. In addition to finding out the strategic planning systems of each company, we are eager to understand how their plans are affected if one of the competitors releases a new and innovative product. We will base our research on Nash equilibrium theory, when one company is moving forward and the other steps back to gain upper hand in the future.  

Outline

1. Nash equilibrium principles in competition

We are implementing the principles of Hotelling's theory of differentiated products. Leading to consumers having much lower reservation prices for the differentiated products. We analyze Nash equilibrium in prices in a duopoly market taking given products as a tool of our research. Whilst the reservation price is relatively low, a Nash equilibrium in prices exists for a wider range of products than when it’s tending to infinity. Also we will examine product competition in the market implementing instantaneous adjustment to the Nash equilibrium prices.