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Nearly-complete Decomposability and Stochastic Stability with an Application to Cournot Oligopoly

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Author Info
J. Thijssen (Department of Economics, Trinity College)

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Abstract

This paper presents a general framework for analysing stochastic stability in models with evolution at two levels. Under certain conditions the theory of nearly-complete decomposability can be used to disentangle these two levels. They can then be studied separately and the equilibrium of one can be used to obtain the equilibrium of the other. This gives an approximation of the equi- librium of the combined dynamics. This approached is applied to a model of conjectural variation and imitation in Cournot oligopoly. If behavioural change takes place infrequently, the Walrasian equilibrium is the unique stochastically stable outcome. As a corollary, it is indicated that smaller industries are more competitive than larger ones.

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Paper provided by Trinity College Dublin, Department of Economics in its series Trinity Economics Papers with number tep6.

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Date of creation: Aug 2005
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Handle: RePEc:tcd:tcduee:tep6

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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. Fudenberg, Drew & Levine, David, 1998. "Learning in games," European Economic Review, Elsevier, vol. 42(3-5), pages 631-639, May. [Downloadable!] (restricted)
  2. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, December.
  3. 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)
  4. Fernando Vega-Redondo, 1997. "The Evolution of Walrasian Behavior," Econometrica, Econometric Society, vol. 65(2), pages 375-384, March.
  5. Alos-Ferrer, Carlos & Ania, Ana B. & Schenk-Hoppe, Klaus Reiner, 2000. "An Evolutionary Model of Bertrand Oligopoly," Games and Economic Behavior, Elsevier, vol. 33(1), pages 1-19, October. [Downloadable!] (restricted)
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  6. Possajennikov, Alex, 2000. "On the evolutionary stability of altruistic and spiteful preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 42(1), pages 125-129, May. [Downloadable!] (restricted)
  7. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January. [Downloadable!] (restricted)
  8. 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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  9. Alos-Ferrer, Carlos, 2004. "Cournot versus Walras in dynamic oligopolies with memory," International Journal of Industrial Organization, Elsevier, vol. 22(2), pages 193-217, February. [Downloadable!] (restricted)
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