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Bank competition with technological innovation based on evolutionary games

Author

Listed:
  • Lai, Chong
  • Li, Rui
  • Gao, Xiujuan

Abstract

We investigate the competition between banks according to an evolutionary model, in which the payoff gradient depends on a time-variant technological innovation factor. The explicit solutions of equilibrium strategies are derived via the method of characteristics. Advantageous technological innovation reduces costs and increases profits and credit supply. Better technology also induces the market’s herding behavior. Under the Bertrand competition, besides technological innovation, we consider the product substitutability and obtain the equilibrium price, which depends on a substitution parameter and the marginal cost. If there is moderate product differentiation, banks will not always reduce interest rates to seize market share.

Suggested Citation

  • Lai, Chong & Li, Rui & Gao, Xiujuan, 2024. "Bank competition with technological innovation based on evolutionary games," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 742-759.
    • Handle: RePEc:eee:reveco:v:89:y:2024:i:pa:p:742-759
    DOI: 10.1016/j.iref.2023.07.055
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    More about this item

    Keywords

    Evolutionary dynamics; Population games; Technological innovation; Bank competition; Herding;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary 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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