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The Use of a Simple Decision Rule in Repeated Oligopoly Games

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  • Jan Edman

Abstract

The Use of a Simple Decision Rule in Repeated Oligopoly Games Much interest has been directed towards decision rules and conditions when firms make decisions converging to a non-cooperative Nash equilibrium in repeated oligopoly games. We explore the use of a simple decision rule where firms only need to have information about their own profits from the two previous periods. The principle of the decision rule is to choose a decision within a boundary of the decision that gave the highest profit in the two previous periods of the game. Simulations using the decision rule with different boundaries for both sequential and simultaneous decisions in the games are analyzed. Furthermore, experiments with a Cournot game, where five firms make decisions simultaneously, show that by using the rule firms with only information about their own profits make decisions similar to firms who also have information about market demand and competitors. In conclusion, the simple decision rule can be used to compute optimal decisions and the rule can also be used as a benchmark for decisions made in repeated oligopoly games.

Suggested Citation

  • Jan Edman, 2004. "The Use of a Simple Decision Rule in Repeated Oligopoly Games," Computing in Economics and Finance 2004 320, Society for Computational Economics.
  • Handle: RePEc:sce:scecf4:320
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    More about this item

    Keywords

    repeated oligopoly games; decision rules; private information; simulation; experiment;

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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