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Can They Beat the Cournot Equilibrium? Learning with Memory and Convergence to Equilibria in a Cournot Oligopoly

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  • Thomas Vallée
  • Murat Yıldızoğlu

Abstract

This article analyses the ability of the learning firms in a Cournot oligopoly to discover market solutions more collusive that the Cournot equilibrium (CE). We start from the results of Vallée and Yıldızoğlu (J Econ Behav Organ 72:670–690, 2009 ) and of Alós-Ferrer (Int J Ind Organ 22:193–217, 2004 ), and qualify the role of random experimenting, social learning (imitation), and (updated) memory in helping firms to discover such solutions. Our new computational results show, in contradiction with Alós-Ferrer (2004) , that memory and its continuous update can indeed allow firms to beat the CE, and benefit from significant periods with higher profits. We show that the results of the literature on evolutionary learning in oligopoly can analytically be characterized through the interaction of three forces, and indicate when these forces can yield more collusive outcomes. We confirm these results with complementary computational experiments that clearly show the role of long memory. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • Thomas Vallée & Murat Yıldızoğlu, 2013. "Can They Beat the Cournot Equilibrium? Learning with Memory and Convergence to Equilibria in a Cournot Oligopoly," Computational Economics, Springer;Society for Computational Economics, vol. 41(4), pages 493-516, April.
    • Handle: RePEc:kap:compec:v:41:y:2013:i:4:p:493-516
    DOI: 10.1007/s10614-012-9349-4
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