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Title: An evolutionary Cournot model with limited market knowledge
Authors: Bischi, Gian Italo
Lamantia, Fabio
Radi, Davide
Issue Date: 2015
Publisher: Elsevier
Bibliographic citation: Bischi Gian Italo, Lamantia Fabio, Radi Davide (2015), An evolutionary Cournot model with limited market knowledge. In: Journal of economic behavior and organization, vol. 116, August 2015, p. 219-238. ISSN 0167-2681.
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.
Journal/Book: Journal of economic behavior and organization
ISSN: 0167-2681
Appears in Collections:Contributo in rivista

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