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Evolution of Conjectures in Cournot Oligopoly

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Jacco Thijssen

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Abstract

This paper considers a dynamic market where a fixed number of firms engages in Cournot oligopoly. Firms choose the output level based on their assessment of the competitors' reaction to their output choice. This is parameterized using an approach reminiscent of conjectural variations. On a second level firms adapt their conjectural variation by imitating the most successful firm. Simulations suggest that in the long-run the Walrasian, Cournot-Nash and cartel equilibria survive. The theory of nearly-complete decomposability is used to show that the Walrasian equilibrium is approximately the only stochastically stable state.

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Paper provided by Trinity College Dublin, Department of Economics in its series Trinity Economics Papers with number 200316.

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Date of creation: 2003
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Handle: RePEc:tcd:tcduee:200316

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Find related papers by JEL classification:
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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  1. Schenk-Hoppe, Klaus Reiner, 2000. "The evolution of Walrasian behavior in oligopolies," Journal of Mathematical Economics, Elsevier, vol. 33(1), pages 35-55, February. [Downloadable!] (restricted)
  2. Milgrom, Paul & Roberts, John, 1991. "Adaptive and sophisticated learning in normal form games," Games and Economic Behavior, Elsevier, vol. 3(1), pages 82-100, February. [Downloadable!] (restricted)
  3. Friedman, James W. & Mezzetti, Claudio, 2002. "Bounded rationality, dynamic oligopoly, and conjectural variations," Journal of Economic Behavior & Organization, Elsevier, vol. 49(3), pages 287-306, November. [Downloadable!] (restricted)
  4. James W. Friedman, 1965. "An Experimental Study of Cooperative Duopoly," Cowles Foundation Discussion Papers 192, Cowles Foundation, Yale University. [Downloadable!]
  5. Burkhard C. Schipper, 2005. "Imitators and Optimizers in Cournot Oligopoly," Discussion Papers 53, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
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  6. Offerman, Theo & Potters, Jan & Sonnemans, Joep, 2002. "Imitation and Belief Learning in an Oligopoly Experiment," Review of Economic Studies, Blackwell Publishing, vol. 69(4), pages 973-97, October.
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  7. Fernando Vega-Redondo, 1997. "The Evolution of Walrasian Behavior," Econometrica, Econometric Society, vol. 65(2), pages 375-384, March.
  8. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January. [Downloadable!] (restricted)
  9. Kalai, Ehud & Stanford, William, 1985. "Conjectural variations strategies in accelerated cournot games," International Journal of Industrial Organization, Elsevier, vol. 3(2), pages 133-152, June. [Downloadable!] (restricted)
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