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Indirect Evolution versus Strategic Delegation: A Comparison of Two Approaches to Explaining Economic Institutions

Author

Listed:
  • Dufwenberg, Martin

    (Department of Economics)

  • Güth, Werner

    (Department of Economics)

Abstract

Two major methods of explaining economic institutions, namely by strategic choices or through (indirect) evolution, are compared for the case of a homogenous quadratic duopoly market. Sellers either can provide incentives for agents to care for sales, or evolve as sellers who care for sales in addition to profits. The two approaches are conceptually quite different, yet similar in the sense that both allow certain kinds of commitment. We show that when the two models are set up in intuitively comparable ways strategic delegation does not change the market results as compared to the usual duopoly solution, while indirect evolution causes a more competitive behavior. Thus the case at hand underscores the differences between the two approaches in explaining economic institutions.

Suggested Citation

  • Dufwenberg, Martin & Güth, Werner, 1998. "Indirect Evolution versus Strategic Delegation: A Comparison of Two Approaches to Explaining Economic Institutions," Working Paper Series 1998:9, Uppsala University, Department of Economics.
    • Handle: RePEc:hhs:uunewp:1998_009
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    References listed on IDEAS

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    Cited by:

    1. Güth, Werner, 1998. "Sequential versus independent commitment: An indirect evolutionary analysis of bargaining rules," SFB 373 Discussion Papers 1998,5, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    2. Possajennikov, A., 1999. "On Evolutionary Stability of Spiteful Preferences," Other publications TiSEM 9b377234-4758-4b80-8671-5, Tilburg University, School of Economics and Management.

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    More about this item

    Keywords

    Indirect evolution; strategic delgation; commitment; duopoly markets; agency theory;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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