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The evolution of mixed conjectures in the rent-extraction game

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Abstract

This paper adopts an evolutionary perspective on the rent-extraction model with conjectural variations (CV). We analyze the global dynamics of the model with three CVs under the replicator equation. We find that the end points of the evolutionary dynamics include the pure-strategy consistent CVs. However, there are also mixed-strategy equilibria that occur. These are on the boundaries between the basins of attraction of the pure-strategy sinks. We develop a more general notion of consistency which applies to mixed-strategy equilibria. In a three conjecture example, we find that in contrast to the pure-strategy equilibria, the mixed-strategy equilibria are not ESS: under the replicator dynamics, there are three or four mixed equilibria that may either be totally unstable, or saddle-stable. There also exist heteroclinic orbits that link equilibria together.

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  • Brito, Paulo & Datta, Bipasa & Dixon, Huw David, 2012. "The evolution of mixed conjectures in the rent-extraction game," Cardiff Economics Working Papers E2012/23, Cardiff University, Cardiff Business School, Economics Section.
  • Handle: RePEc:cdf:wpaper:2012/23
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    1. Kopel, Michael & Lamantia, Fabio & Szidarovszky, Ferenc, 2014. "Evolutionary competition in a mixed market with socially concerned firms," Journal of Economic Dynamics and Control, Elsevier, vol. 48(C), pages 394-409.

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    More about this item

    Keywords

    Rent-extraction; evolutionary dynamics; consistent conjectures; global dynamics; mixed-strategy;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • H0 - Public Economics - - General

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