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Imitation and the Evolution of Walrasian Behavior: Theoretically Fragile but Behaviorally Robust

  • Jose Apesteguia

    ()

    (Universitat Pompeu Fabra)

  • Steffen Huck

    ()

    (University College London, Department of Economics)

  • Jörg Oechssler

    ()

    (University of Heidelberg, Department of Economics)

  • Simon Weidenholzer

    ()

    (University of Vienna, Department of Economics)

A well-known result by Vega-Redondo implies that in symmetric Cournot oligopoly, imitation leads to the Walrasian outcome where price equals marginal cost. In this paper we show that this result is not robust to the slightest asymmetry in fixed costs. Instead of obtaining the Walrasian outcome as unique prediction, every outcome where agents choose identical actions will be played some fraction of the time in the long run. We then conduct experiments to check this fragility. We obtain that, contrary to the theoretical prediction, the Walrasian outcome is still a good predictor of behavior.

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File URL: http://www.uni-heidelberg.de/md/awi/forschung/dp461.pdf
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Paper provided by University of Heidelberg, Department of Economics in its series Working Papers with number 0461.

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Length: 13 pages
Date of creation: Nov 2007
Date of revision: Nov 2007
Handle: RePEc:awi:wpaper:0461
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  1. Jose Apesteguia & Steffen Huck & Jorg Oechssler, 2003. "Imitation - Theory and Experimental Evidence," Experimental 0309001, EconWPA.
  2. G. Noldeke & L. Samuelson, 2010. "An Evolutionary Analysis of Backward and Forward Induction," Levine's Working Paper Archive 538, David K. Levine.
  3. Fernando Vega-Redondo, 1997. "The Evolution of Walrasian Behavior," Econometrica, Econometric Society, vol. 65(2), pages 375-384, March.
  4. Steffen Huck & Hans-Theo Normann & Joerg Oechssler, 1998. "Does information about competitors' actions increase or decrease competition in experimental oligopoly markets?," Industrial Organization 9803004, EconWPA.
  5. Abbink, Klaus & Brandts, Jordi, 2008. "24. Pricing in Bertrand competition with increasing marginal costs," Games and Economic Behavior, Elsevier, vol. 63(1), pages 1-31, May.
  6. Huck, Steffen & Normann, Hans-Theo & Oechssler, Jorg, 1999. "Learning in Cournot Oligopoly--An Experiment," Economic Journal, Royal Economic Society, vol. 109(454), pages C80-95, March.
  7. Karl H. Schlag, . "Why Imitate, and if so, How? A Bounded Rational Approach to Multi- Armed Bandits," ELSE working papers 028, ESRC Centre on Economics Learning and Social Evolution.
  8. M. Kandori & G. Mailath & R. Rob, 1999. "Learning, Mutation and Long Run Equilibria in Games," Levine's Working Paper Archive 500, David K. Levine.
  9. Theo Offerman & Jan Potters & Joep Sonnemans, 2002. "Imitation and Belief Learning in an Oligopoly Experiment," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 973-997.
  10. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
  11. Reinhard Selten & Jose Apesteguia, 2002. "Experimentally Observed Imitation and Cooperation in Price Competition on the Circle," Bonn Econ Discussion Papers bgse19_2002, University of Bonn, Germany.
  12. Carlos Alós-Ferrer & Ana Ania, 2005. "The evolutionary stability of perfectly competitive behavior," Economic Theory, Springer, vol. 26(3), pages 497-516, October.
  13. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  14. Yasuhito Tanaka, 1999. "Long run equilibria in an asymmetric oligopoly," Economic Theory, Springer, vol. 14(3), pages 705-715.
  15. Schlag, Karl H., 1994. "Why Imitate, and if so, How? Exploring a Model of Social Evolution," Discussion Paper Serie B 296, University of Bonn, Germany.
  16. repec:ner:tilbur:urn:nbn:nl:ui:12-91663 is not listed on IDEAS
  17. P. Young, 1999. "The Evolution of Conventions," Levine's Working Paper Archive 485, David K. Levine.
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