Experimental oligopolies modeling: A dynamic approach based on heterogeneous behaviors

• Published in: Communications in nonlinear science & numerical simulation 2018-05, Vol.58, p.47-61
• Main Authors: Cerboni Baiardi, Lorenzo, Naimzada, Ahmad K.
• Format: Article
• Language: English
• Subjects: Dynamic instability; Dynamical systems; Economic models; Equilibrium; Heterogeneity; Heuristic; Imitation; Oligopoly; Players
• ISSN: 1007-5704; 1878-7274
• DOI: 10.1016/j.cnsns.2017.05.010

•Experimental oligopolies reveal that both rationality and an imitation are components of players' decision mechanisms.•By considering two groups of firms which behaviors are consistent to those components, a dynamic model is obtained.•Dynamical scenarios from the model can qualitatively reproduce the typical experimental outcomes. In the rank of behavioral rules, imitation-based heuristics has received special attention in economics (see [14] and [12]). In particular, imitative behavior is considered in order to understand the evidences arising in experimental oligopolies which reveal that the Cournot-Nash equilibrium does not emerge as unique outcome and show that an important component of the production at the competitive level is observed (see e.g.[1,3,9] or [7,10]). By considering the pioneering groundbreaking approach of [2], we build a dynamical model of linear oligopolies where heterogeneous decision mechanisms of players are made explicit. In particular, we consider two different types of quantity setting players characterized by different decision mechanisms that coexist and operate simultaneously: agents that adaptively adjust their choices towards the direction that increases their profit are embedded with imitator agents. The latter ones use a particular form of proportional imitation rule that considers the awareness about the presence of strategic interactions. It is noteworthy that the Cournot-Nash outcome is a stationary state of our models. Our thesis is that the chaotic dynamics arousing from a dynamical model, where heterogeneous players are considered, are capable to qualitatively reproduce the outcomes of experimental oligopolies.