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Oligopoly game: Price makers meet price takers

Mikhail Anufriev () and Dávid Kopányi ()

Journal of Economic Dynamics and Control, 2018, vol. 91, issue C, 84-103

Abstract: The paper studies an oligopoly game, where firms can choose between price-taking and price-making strategies. On a mixed market price takers are always better off than price makers, though the profits of both types decline in the number of price takers. We investigate and confront two possibilities of firms’ decisions about their types: forward-looking equilibrium reasoning and backward-looking individual learning. We find that the Cournot outcome is the only equilibrium prediction and it is learnable if firms are sufficiently sensitive to profit differences. However, with a larger number of firms, a unilateral deviation from Cournot behavior becomes profitable. Under learning this incentive creates a space for permanent oscillations over different markets with a positive but low number of price takers.

Keywords: Evolutionary oligopoly; Individual learning; Cournot–Nash equilibrium (search for similar items in EconPapers)
JEL-codes: C63 C72 D43 D83 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1016/j.jedc.2018.02.013

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Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

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