An evolutionary Cournot model with limited market knowledge

Gian Italo Bischi, Fabio Lamantia and Davide Radi ()

Journal of Economic Behavior & Organization, 2015, vol. 116, issue C, 219-238

Abstract: In this paper we analyze a dynamic game of Cournot competition with heterogeneous firms choosing between two different adaptive behavioral rules in deciding output strategies. The underlying oligopoly structure is standard: using a constant return to scale technology, N firms produce homogeneous goods, which are sold in a market characterized by constant price elasticity. In this setup, we assume that a fraction of firms employs a quite rough rule of thumb, the so-called Local Monopolistic Approximation (LMA), whereas the complementary fraction plays Best Reply (BR), a more demanding strategy in terms of information and computation requirements. The model is first considered with exogenously fixed fractions of firms in the two complementary groups. Then it is generalized by considering an endogenous evolutionary switching process between the two behavioral strategies based on profit-driven replicator dynamics. The role of the number of firms, information costs and inertia (or anchoring attitude) in production decisions is analyzed, as well as the influence in the evolutionary process of random noise in the demand function and memory of past profits. Global properties of the oligopoly with evolutionary pressure between behavioral rules are discussed, with particular regard to cases in which the Nash equilibrium is unstable.

Keywords: Oligopolies; Local Monopolistic Approximation; Evolutionary dynamics; Heterogeneous firms; Nonlinear phenomena (search for similar items in EconPapers)
JEL-codes: C73 D83 L13 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (53)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167268115001341
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:116:y:2015:i:c:p:219-238

DOI: 10.1016/j.jebo.2015.04.024

Access Statistics for this article

Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

More articles in Journal of Economic Behavior & Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().