Solutions to Non-Textbook Exercises

Exercise 2 (Corrected)

Lemma 1.1. For the N > 2 player game, If a strategy prole calls for all players to play the same strategy, it is not a Nash Equilibrium.
1 Proof. Suppose that s1 = s2 = . . . = sN = s . Then each players payo is ui = N . Without loss of 1 1 generality, suppose that s 2 . If player 1 instead plays s1 = N , then (holding all other players actions constant at s ) his payo will be 1 1 1 1 + s > , u1 = N 2 N N

so this is a protable deviation. Lemma 1.2. No player will alone play the minimum or maximum strategy. Proof. Suppose that there exists an i such that si < sj for all j = i (that is, there is some player playing a smallest strategy). Let sk be the next smallest strategy played (and it may be played by any number of players). Then the payo to player i is ui = si + Suppose that instead, player i plays si = ui = si + sk 1 + 2 2
si +sk 2 .

sk si sk + si = . 2 2

Then player is payo becomes si + sk 2 = si + sk sk si + > ui , 2 4

sk

so there exists a protable deviation. Playing the maximum is excluded by a parallel argument. Proposition 1.1. There is no Nash equilibrium of the 3-player Hotelling game. Proof. Since there is no way to arrange the 3 players without having them all play the same strategy, or without one uniquely playing the maximum or minimum, we can rule out a Nash equilibrium here by relying on the above lemmas. Proposition 1.2. For N = 4, the strategy prole (s1 , s2 , s3 , s4 ) = (0.25, 0.25, 0.75, 0.75) is a Nash Equilibrium. Proof. The payos for each player in this case are 0.25. Deviating to any other point gives a payo of at most 0.25 (you can check this using the same strategy that I outline in the proof below), so no protable deviation exists. Proposition 1.3. For N = 5, the strategy prole (s1 , s2 , s3 , s4 , s5 ) =
1 1 1 5 5 6, 6, 2, 6, 6

is a Nash Equilibrium.

1 Proof. The players playing at either extreme have payos of 1 6 . I will prove that those playing 6 have no deviation, and the proof for those at the other extreme is symmetric. Suppose a player plays less than 1 6 or 1 1 5 . Then their payo is less than . If this player plays between and , they receive a payo of more than 5 6 6 6 6 1 , so no protable deviation exists for these players. 6 1 1 5 Now consider the player playing 1 2 . His payo is 3 . If he deviates to any strategy between 6 and 6 , 1 1 his payo is 3 . Any other deviation leads to a payo of less than 6 . So no protable deviation is possible. Therefore this is a Nash equilibrium.