Examples of Nash Equilibrium

OPEC

This is an organization of major oil producing countries, and include 12 nations - Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela. Together, the entire group can affect oil prices by limiting or increasing the number of oil barrels being produced.

Recent example of Nash Equilibrium failure: 29th June 2011 - "Officially, OPEC is peeved at the International Energy Agency for releasing oil from its stockpile. Unofficially, Saudi Arabia, the de facto leader of the Organization of Petroleum Exporting Countries, must be grateful.OPEC rarely has been good at controlling oil prices. Its 1970s heyday turned to bust in the 1980s as high oil prices inflicted recession on consuming countries and encouraged energy efficiency and the development of new fields. Its members also rarely stick to output quotas.  

[ Economists say cartels are inherently unstable because their members have a tendency to “chisel,” increasing output by a little to make windfall revenue gains at the artificially high price. As each country chisels, hoping it is the only one, the market is flooded with extra supply and the cartel ends up collapsing. ]

OPEC's other critical failure concerns its lack of investment in new capacity. A cartel can control prices only if it holds enough spare capacity to counter price spikes. Otherwise, it can put a floor under prices only by cutting back when demand drops. Yet most OPEC members are running flat out and the bulk of the organization's spare capacity, more than three-quarters of it, is held by Saudi Arabia.

You might think high oil prices aren't a problem for OPEC. And they aren't in the short term. But it's worth remembering that while OPEC has produced 436 billion barrels of oil since 1965, according to data from BP, it still has proven reserves of almost 1.1 trillion barrels. That's a lot of money still to be made, provided high oil prices don't force addicted consumers to get their energy fix some other way, as happened after the 1970s.

Saudi Arabia holds one in four of those 1.1 trillion barrels in the ground, giving it a big stake in keeping oil prices stable and consumer friendly over the longer term. Yet its spare capacity of three million barrels a day is now just 3.4% of global demand and using any of that by definition leaves a smaller cushion. That, in turn, encourages higher bids for oil futures; even if physical markets are well-supplied today, they might not be tomorrow.

The IEA's release of emergency stocks, though representing only 3.9% of the total, delivered a jolt to such expectations. In effect, the IEA made its own "spare capacity" available in a way that oil bulls hadn't expected. Rather than just focusing on Saudi Arabia's ability to open up its taps, oil traders now also must contend with potentially disruptive moves by the IEA.

Whether this new paradigm is sustainable is an open question. By lowering prices, the IEA's move ultimately encourages more oil consumption, which isn't in consuming countries' interest. On the other hand, a recession is a high price to pay for energy conservation. In the short-term, at least, the IEA and Saudi Arabia have a mutual interest in stabilizing oil prices below $100 a barrel, both to keep economies humming and Saudi Arabia's long-term prospects intact."


IMF

The International Monetary Fund (IMF) is an organization of 187 countries. Membership into IMF requires a fee, which makes up the fund that IMF has. The fund lends to countries that have trouble meeting their international payments and cannot otherwise find sufficient financing on affordable terms. The loan is not free. It comes with an interest. IMF can affect currency prices.

G7

G7 is the group of 7 very rich countries, and is made up of France, Germany, Italy, Japan, United Kingdom, Canada and United States. This group can intervene in the currency markets.

The recent Japan nuclear crisis has seen Japanese Yen strengthening tremendously and is undesirable for the Japan's economy as the income from overseas will be greatly diluted after conversion back to Yen. Since market forces are too strong, the Japanese government cooperated with the G7 members to weaken the Yen on 17/03/2011.

Just imagine if you are in any of the groups above, you have "insider" information about the futures markets and can know when and at what price to buy or sell futures contracts.