Evolutionary Stability in Asymmetric Oligopoly. A Non-Walrasian Result

Wolfgang Leininger and Hamed M.Moghadam

No 497, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: It is a very well-known result that in terms of evolutionary stability the long-run outcome of a Cournot oligopoly market with finitely many firms approaches the perfectly competitive Walrasian market outcome (Vega-Redondo, 1997). However, in this paper we show that an asymmetric structure in the cost functions of firms may change the long-run outcome. Contrary to Tanaka (1999) we show that the evolutionarily stable price in an asymmetric Cournot oligopoly needs not equal the marginal cost, it may rather equal a weighted average of (different) marginal cost. We apply a symmetrization technique in order to transform the game with asymmetric firms into a symmetric oligopoly game and then extend Schaffer's definition (1988) of a finite population ESS (FPESS) to this setup. Moreover, we show that the FPESS in this game represents a stochastically stable state of an evolutionary process of imitation with experimentation.

Keywords: Cournot oligopoly; asymmetry; finite population evolutionary stable strategy; stochastic stability (search for similar items in EconPapers)
JEL-codes: C72 C73 D43 L13 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-com, nep-evo and nep-gth
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:497

DOI: 10.4419/86788570

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