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The Evolution of Consistent Conjectures

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  • Huw D Dixon
  • Ernesto Somma

Abstract

In this paper we model the evolution of conjectures in an economy consisting of a large number of firms which meet in duopolies. The duopoly game is modelled by the conjectural variation (CV) model. An evolutionary process leads to more profitable conjectures becoming more common (payoff monotone dynamics). Under payoff monotonic dynamics, convergence occurs to a small set of serially undominated strategies containing the consistent onjecture. This set can be made arbitrarily small by appropriate choice f the strategy set. If the game is dominance solvable, then the dynamics converges globally to the unique attractor.

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Paper provided by Department of Economics, University of York in its series Discussion Papers with number 01/16.

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Handle: RePEc:yor:yorken:01/16

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  1. Fershtman, Chaim & Kamien, Morton I, 1987. "Dynamic Duopolistic Competition with Sticky Prices," Econometrica, Econometric Society, vol. 55(5), pages 1151-64, September.
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  6. Boyer, Marcel & Moreaux, Michel, 1983. "Consistent versus Non-Consistent Conjectures in Doupoly Theory: Some Examples," Journal of Industrial Economics, Wiley Blackwell, vol. 32(1), pages 97-110, September.
  7. Samuelson, Larry & Zhang, Jianbo, 1992. "Evolutionary stability in asymmetric games," Journal of Economic Theory, Elsevier, vol. 57(2), pages 363-391, August.
  8. Makowski, Louis, 1987. "Are 'Rational Conjectures' Rational?," Journal of Industrial Economics, Wiley Blackwell, vol. 36(1), pages 35-47, September.
  9. Maskin, Eric & Tirole, Jean, 1987. "A theory of dynamic oligopoly, III : Cournot competition," European Economic Review, Elsevier, vol. 31(4), pages 947-968, June.
  10. Cabral, Luis M. B., 1995. "Conjectural variations as a reduced form," Economics Letters, Elsevier, vol. 49(4), pages 397-402, October.
  11. Martin K. Perry, 1982. "Oligopoly and Consistent Conjectural Variations," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 197-205, Spring.
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  13. Bresnahan, Timothy F, 1981. "Duopoly Models with Consistent Conjectures," American Economic Review, American Economic Association, vol. 71(5), pages 934-45, December.
  14. Reynolds, Stanley S, 1987. "Capacity Investment, Preemption and Commitment in an Infinite Horizon Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(1), pages 69-88, February.
  15. Ulph, David, 1983. "Rational conjectures in the theory of oligopoly," International Journal of Industrial Organization, Elsevier, vol. 1(2), pages 131-154, June.
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Cited by:
  1. Anglin, Paul, 2008. "On the proper behavior of atoms: A comment on a critique," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(1), pages 277-280.
  2. Possajennikov, Alex, 2009. "The evolutionary stability of constant consistent conjectures," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 21-29, October.
  3. Anonymous & Bosch, Darrell J., 2013. "Table of contents," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 45(02), May.
  4. Hovhannisyan, Vardges & Stiegert, Kyle W. & Bozic, Marin, 2013. "On Endogeneity Of Retail Market Power In An Equilibrium Analysis: A Control Function Approach," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 149830, Agricultural and Applied Economics Association.
  5. Durevall, Dick, 2007. "Demand for coffee in Sweden: The role of prices, preferences and market power," Food Policy, Elsevier, vol. 32(5-6), pages 566-584.
  6. Hovhannisyan, Vardges & Bozic, Marin, 2013. "A Benefit-Function Approach to Studying Market Power: An Application to the U.S. Yogurt Market," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 38(2), August.
  7. Alex Possajennikov, . "Conjectural Variations in Aggregative Games: An Evolutionary Perspective," Discussion Papers 12/04, University of Nottingham, School of Economics.
  8. Paulo Brito & Bipasa Datta & Huw Dixon, 2012. "The evolution of the mixed conjectures in the rent-extraction game," Discussion Papers 12/33, Department of Economics, University of York.
  9. Nicolas Quérou & Mabel Tidball, 2009. "Consistent Conjectures in a Dynamic Model of Non-renewable Resource Management," Working Papers 09-28, LAMETA, Universtiy of Montpellier, revised Dec 2009.
  10. Alex Possajennikov, 2004. "Evolutionary Stability of Constant Consistent Conjectures," Game Theory and Information 0405009, EconWPA.
  11. Victor Tremblay, 2009. "Introduction: Economic Issues in Sports," Review of Industrial Organization, Springer, vol. 34(1), pages 1-4, February.

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