O Nash equilibrium and its reflections on the theory of regulated markets

Abstract

The shift in the Brazilian State's stance regarding its role in the economic sphere from the mid-1990s onwards gave rise to a new regulatory context in the country. From a State that directly intervened in the economy through its state-owned companies, Brazil adopted a new posture, intervening indirectly through independent regulatory bodies. Sectors previously managed by the Brazilian State, such as electricity and telecommunications, passed into the sphere of private administration, with the State maintaining public interests in the economy through the regulation of these sectors. The formation of antagonistic interests between the private entities responsible for the execution of these services and the Public Administration, responsible for regulation, gives rise to a game of interests studied by modern game theory. Nash equilibrium arises when the strategies used by the players are the best in relation to each other, resulting in a balance in the players' actions. Given that, according to the principles outlined in the Brazilian constitutional order, markets must fulfill their social function, any strategic action that, due to Nash equilibrium, impedes the fluidity of regulation should be considered detrimental to the markets. Efficiency must be understood legally. Hence the importance of understanding the pursuit of the public interest by the regulator as its main task, in order to avoid informational asymmetry.