The evolution of Walrasian behavior in oligopolies

This paper studies an explicitly dynamic evolutionary model of Cournot oligopoly in which the behavior of firms is based on imitation of success and experimentation. It is proved that only (evolutionary) stable sets are selected by the unique invariant measure of the induced Markov chain as the prob...

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Bibliographic Details
Published in:Journal of mathematical economics 2000-02, Vol.33 (1), p.35-55
Main Author: Schenk-Hoppé, Klaus Reiner
Format: Article
Language:English
Subjects:
Cournot oligopoly
Economic models
Evolution
Imitation
Markov analysis
Oligopoly
Walrasian equilibria
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Summary:This paper studies an explicitly dynamic evolutionary model of Cournot oligopoly in which the behavior of firms is based on imitation of success and experimentation. It is proved that only (evolutionary) stable sets are selected by the unique invariant measure of the induced Markov chain as the probability of experimentation tends to zero. Evolutionary stability refers to a finite population set-up here. We show that stable singletons and symmetric Walrasian equilibria coincide in general. Furthermore, Walrasian equilibria can be approximated by stable proper intervals. These results generalize and extend the approach of Vega-Redondo [Vega-Redondo, F., 1997. The evolution of Walrasian behavior. Econometrica 65, 375–384].
ISSN:0304-4068
1873-1538
DOI:10.1016/S0304-4068(99)00010-5