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- An Evolutionary Model Of Bertrand Oligopoly

Author

Listed:
  • Ana B. Ania

    (Universidad de Alicante)

  • Carlos Alós-Ferrer

    (Universidad de Alicante)

  • Klaus R. Schenk-Hoppé

    (University of Bielefeld)

Abstract

We analyze the long-run outcome of markets in which boundedly rational firms with a decreasingreturns to scale technology compete in prices. The behavior of these firms is based on limitation ofsuccess and experimentation. In this framework, we introduce a new approach to model boundedlyrational behavior, based on the idea of behavioral principles, i.e. formal descriptions. Even with thesimplest ones, the result is that the prices announced are a strict refinement of the set of Nashequilibria. With more sophisticated behavioral principles, the long-run outcome corresponds to theconcept of central prices (wich are also Nash equilibria) introduced here. This is a robust andclear-cut prediction wich, under quadratic costs and arbitrary demand, essentially coincides with theWalrasian equilibrium.

Suggested Citation

  • Ana B. Ania & Carlos Alós-Ferrer & Klaus R. Schenk-Hoppé, 1998. "- An Evolutionary Model Of Bertrand Oligopoly," Working Papers. Serie AD 1998-14, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    • Handle: RePEc:ivi:wpasad:1998-14
    as

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    References listed on IDEAS

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    Keywords

    evolution; mutation; imitation;
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