Fifth Element of Game Theory Essay

As each of the competing companies watchfully study the moves made by the differents in the alike exertion they all belong to, they sometimes dismiss up deciding to just do the best they undersurface to go on the biggest sh atomic number 18 in the market with come in spending more time focus of the others. This direction, when taken by the industry players, results to the occurrence of Nash equilibrium. (political economy 11th Edition by Richard G. Lipsey & Paul N. Courant, UK HarperCollins College Publishers, 1996)The above graph illustrates the Nash equilibrium and the optimum result that it leads to (Osborne, An gateway to Game surmisal). As opposed to how badly things may end up for the competing players, Nash equilibrium brings in profitable results for everybody. As opposed to getting stuck with the prisoners dilemma or the pride game, companies in this scenario project individually opted to stick to the strategies that they believe leave work and will book them t he market dominance that will secure their place as the industry leader.Effects of Equilibrium Equilibrium brings balance to the economy whether long- or short-lived. As a temporary phase that may or may not be maintained, equilibrium occurs when in that respect is no tendency for change in the decisions of the economic entities regarding their products and services, the price and mountain that they will show, and the demand segment that they will target. (Lipsey & Courant 510) Equilibrium suffices in different forms as prevailing circumstances vary.In the macroeconomic goods market, equilibrium occurs when planned pile up expenditure is equal to aggregate exposeput. Thus, the volume that the suppliers has made available in the market is the same volume that buyers will actually buy. Meanwhile, equilibrium in the monetary markets is attained when the supply of money is equal to the demand for money (Case & Fair 67). In this setting, sufficient borrowers find that there ar e loans that they can avail.In the same setting, financial institutions are able to use in their operations the idle property in their coffers they issue loans to maximize their income from lending activities. Equilibrium has been thoroughly explored as a concept and has been attributed with all kinds of applications arising from distinct circumstances and conclusions. It is not surprise that there evolved a specialized branch of game theory called ecumenic Equilibrium Theory which is widely used in analyzing the public and hidden sectors of the economy.(David Levine website) Freddie Mac in the Game Theory Freddie Mac never had to guard off many competitors in the industry. As one of the two giants the other one being Fannie Mae serving the countrys secondary mortgage market, the gaming area has turned out to be definitely spacious. Indeed, there is the entire USA as the territory to be serviced and there come the banks to take care of dealing with them then there come Freddi e Mac, buttocks Mae and Ginny to pour in the needed financial re beginnings.With Freddie Mac and Fannie Mae issuing or guaranteeing a total of $5. 4 trillion in outstanding mortgage debt, these two companies practically make up the entire mortgage industry. Furthermore, they are equipped with all the needed ammunition for winning Fannie Mae and Freddie Mac spend a penny indisputable strong points. Due to the implied backing of the United States government, they enjoy close unlimited access to the capital markets at funding costs that are below market. They pay no local taxes, only national.Each has enjoyed wondrous growth and profitability. As the biggest issuers of mortgage-backed securities and corporate securities in the world, the biggest buyers and hedgers of the securities in the world, and, not least, the source of liquidity for more than 75% of conventional and conforming home mortgages lengthened in this country, it could be argued that Fannie Mae and Freddie Mac are cl ose as substitution to the American capital markets as the Treasury Department. (Annaly webstie) (Source World Socialist website)Indeed, with their covet roles as providers of a continuing supply of money for the banking institutions engaged in retail lending to the multitudes, Freddie Mac and Fannie Mae own the game. As competitors offering the same products and services, enjoying the same rare privileges and dealing with the same clients, Freddie Mac and Fannie May guard consistently been like identical twins though Fannie May turns out to be decades older than Freddie Mac. With each one of them keen on licking the other, the strategies and packages they resorted to turned out to work for both of them, at least during the well-off growth years of the industry.Consistent with the Nash equilibrium concept, a report that came out in the Spring of 2002 showed that fully one-half of 2002s 1. 2% pull ahead in real GDP growth was brought on by the hold activities across the countr y. (Annaly website) Freddie Mac and Fannie May have been playing the Nash Equilibrium game. In such a game as theirs, players play the best they can given their beliefs, and they have learned all there is to learn about their opponents play (David Levine website). Works Cited Osborne, Martin. An Introduction to Game Theory. Oxford University Press, 2002. Lipsey, Richard & Courant, Paul.Economics 11th Edition. New York HarperCollins College Publishers, 1996. Case, Karl & Fair, Ray. Principles of Economics 8th Edition. Prentice Hall, 2007. Levine, David. What is Game Theory? Department of Economic, UCLA. 29 October 2008 Annaly. com sack upsite. FAQs on Fannie Mae and Freddie Mac, 29 October 2008 World Socialist Web Site. The Importance of Fannie Mae and Freddie Mac. 29 October 2008