LEARNING TO PLAY BEST RESPONSE IN DUOPOLY GAMES

Jan Wenzelburger ()

International Game Theory Review (IGTR), 2004, vol. 06, issue 03, 443-459

Abstract: We consider a quantity-setting duopoly market where firms lack perfect knowledge of the market demand function. They use estimated and therefore misspecified demand functions instead and determine their optimal strategies from the corresponding subjective payoff functions. The central issue of this paper is the question under which conditions a firm can learn the true demand function as well as the response behavior of its competitor from repeated estimations of historical market data. As soon as estimation errors are negligible, a firm is able to play best response in the usual game theoretic sense.

Keywords: Learning; bounded rationality; heterogeneity; duopoly games; JEL Classification: C61; JEL Classification: C62; JEL Classification: D83; JEL Classification: D84 (search for similar items in EconPapers)
JEL-codes: B4 C0 C6 C7 D5 D7 M2 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (2)

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DOI: 10.1142/S0219198904000290

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