Imitators and Optimizers in a Changing Environment

Burkhard Hehenkamp and Oddvar Kaarboe ()

Discussion Papers in Economics from University of Dortmund, Department of Economics

Abstract: We analyze the dynamic interaction between imitators and optimizers in a changing world. To this end, we put forward a symmetric duopoly game of strategic substitutes where players interact repeatedly in a world of demand- and cost-uncertainty. If the environment changes every period, the process converges globally to a unique two-period cycle where the optimizer has highest payoff every period. As to the general stochastic case, we characterize the long-run average per-period payoff for the optimizer and the imitator respectively as a function of the environmental switching probabilities. It turns out that the imitator experiences selection pressure for a large range of switching probabilities.

Pages: 31 pages
Date: 2004-12
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Working Paper: Imitators and Optimizers in a Changing Environment (2003)
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