TY - JOUR
T1 - An Evolutionary Model of Bertrand Oligopoly
AU - Alós-Ferrer, Carlos
AU - Ania, Ana B.
AU - Schenk-Hoppé, Klaus Reiner
N1 - Funding Information:
The authors thank Fernando Vega–Redondo, two anonymous referees, and an associate editor for helpful comments. Financial support from the DFG under contract Bo 635/8-2, the Institute of Mathematical Economics, University of Bielefeld, by a TMR grant under contract FMRX CT96 0055 “Cooperation and Information,” the Spanish Ministry of Education under project PB94-1504, and the Instituto Valenciano de Investigaciones Económicas (IVIE) is gratefully acknowledged. This paper has been written while KRSH was at the University of Bielefeld Department of Economics in Germany.
PY - 2000/10
Y1 - 2000/10
N2 - This paper presents an evolutionary model of Bertrand competition in a market for a homogeneous good, where identical firms face a technology with decreasing returns to scale. Only quoted prices and realized profits are observed. The behavior of firms is based on imitation of success and experimentation, and is formally modeled through behavioral principles. We find that, even under simple behavior, the dynamic process selects a strict subset of the Nash equilibria of the underlying game. In the long run all firms make positive profits. Adding more sophistication, we obtain a finer prediction, named "central prices." This prediction essentially coincides with the Walrasian equilibrium, if costs are quadratic. Journal of Economic Literature Classification Numbers: C72, L13.
AB - This paper presents an evolutionary model of Bertrand competition in a market for a homogeneous good, where identical firms face a technology with decreasing returns to scale. Only quoted prices and realized profits are observed. The behavior of firms is based on imitation of success and experimentation, and is formally modeled through behavioral principles. We find that, even under simple behavior, the dynamic process selects a strict subset of the Nash equilibria of the underlying game. In the long run all firms make positive profits. Adding more sophistication, we obtain a finer prediction, named "central prices." This prediction essentially coincides with the Walrasian equilibrium, if costs are quadratic. Journal of Economic Literature Classification Numbers: C72, L13.
KW - Evolution; mutation; imitation; bertrand oligopoly
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U2 - 10.1006/game.1999.0765
DO - 10.1006/game.1999.0765
M3 - Article
AN - SCOPUS:17944393169
SN - 0899-8256
VL - 33
SP - 1
EP - 19
JO - Games and Economic Behavior
JF - Games and Economic Behavior
IS - 1
ER -