Is limit pricing evolutionarily stable?
We have analyzed the question whether or not limit-pricing behavior can be viewed as a strategy, which survives the replicator dynamics in a game in which firms change strategies through imitation. Our results show that, regardless of the proportion of low cost incumbents in the population, potential entrants that play the strategy "enter" when they observe limit output are wiped out. The unique ESS consists of all low cost incumbents playing the "limit output" strategy, and all high cost incumbents playing the "monopoly output". This ESS includes potential entrants playing "stay out" after observing the limit output, and playing "enter" if monopoly output is observed in the first stage. Hence, limit pricing survives the replicator dynamics and appears in the stable state of the population. Copyright Springer Verlag Berlin/Heidelberg 2003
Volume (Year): 13 (2003)
Issue (Month): 3 (August)
|Contact details of provider:|| Web page: http://www.springer.com|
|Order Information:||Web: http://www.springer.com/economics/journal/191/PS2|
When requesting a correction, please mention this item's handle: RePEc:spr:joevec:v:13:y:2003:i:3:p:281-288. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Rebekah McClure)
If references are entirely missing, you can add them using this form.