An evolutionary model of price competition among spatially distributed firms

Ludo Waltman, Nees Jan van Eck, Rommert Dekker and Uzay Kaymak ()

No EI 2011-09, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: Various studies have shown the emergence of cooperative behavior in evolutionary models with spatially distributed agents. We investigate to what extent these findings generalize to evolutionary models of price competition among spatially distributed firms. We consider both one- and two-dimensional models, and we vary the amount of information firms have about competitors in their neighborhood. Our computer simulations show that the emergence of cooperative behavior depends strongly on the amount of information available to firms. Firms tend to behave most cooperatively if they have only a very limited amount of information about their competitors. We provide an intuitive explanation for this phenomenon. Our simulations further indicate that three other factors in our models, namely the accuracy of firms’ information, the probability of experimentation, and the spatial distribution of consumers, have little effect on the emergence of cooperative behavior.

Date: 2011-03-24
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Journal Article: An Evolutionary Model of Price Competition Among Spatially Distributed Firms (2013)
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