What does Nash equilibrium represent in game theory?

Nash equilibrium represents a situation in game theory where each player optimizes their own payoff given the strategies chosen by all other players. In this equilibrium, no player has anything to gain by changing their own strategy unilaterally. This means that every participant in the game is making the best decision they can, considering the decisions of the other players.

When players reach a Nash equilibrium, they have found a stable outcome where everyone is satisfied with their strategy, and any deviation would lead to a lesser payoff for the player who chooses to deviate from this equilibrium. This concept emphasizes the interdependence of decisions in competitive situations, contrasting with scenarios where optimal outcomes arise from cooperation among all players, which would instead correspond to the first choice. The other options focus on specific circumstances that do not capture the essence of Nash equilibrium, such as price wars or monopoly conditions, which are limited to particular economic scenarios rather than the general strategic interaction described by Nash.