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Nearly-complete Decomposability and Stochastic Stability with an Application to Cournot Oligopoly

  • J. Thijssen

    (Department of Economics, Trinity College)

This paper presents a general framework for analysing stochastic stability in models with evolution at two levels. Under certain conditions the theory of nearly-complete decomposability can be used to disentangle these two levels. They can then be studied separately and the equilibrium of one can be used to obtain the equilibrium of the other. This gives an approximation of the equi- librium of the combined dynamics. This approached is applied to a model of conjectural variation and imitation in Cournot oligopoly. If behavioural change takes place infrequently, the Walrasian equilibrium is the unique stochastically stable outcome. As a corollary, it is indicated that smaller industries are more competitive than larger ones.

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File URL: http://www.tcd.ie/Economics/TEP/2005_papers/TEP6.pdf
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Paper provided by Trinity College Dublin, Department of Economics in its series Trinity Economics Papers with number tep6.

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Date of creation: Aug 2005
Date of revision:
Handle: RePEc:tcd:tcduee:tep6
Contact details of provider: Postal: Trinity College, Dublin 2
Phone: (+ 353 1) 6081325
Fax: 6772503
Web page: http://www.tcd.ie/Economics/

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  1. Fudenberg, Drew & Levine, David, 1998. "Learning in games," European Economic Review, Elsevier, vol. 42(3-5), pages 631-639, May.
  2. Schipper, Burkhard C., 2005. "Imitators and Optimizers in Cournot Oligopoly," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 53, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  3. Fernando Vega-Redondo, 1997. "The Evolution of Walrasian Behavior," Econometrica, Econometric Society, vol. 65(2), pages 375-384, March.
  4. 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).
  5. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, June.
  6. Possajennikov, Alex, 2000. "On the evolutionary stability of altruistic and spiteful preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 42(1), pages 125-129, May.
  7. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
  8. Carlos Alós-Ferrer, 2001. "Cournot versus Walras in Dynamic Oligopolies with Memory," Vienna Economics Papers 0110, University of Vienna, Department of Economics.
  9. Milgrom, Paul & Roberts, John, 1991. "Adaptive and sophisticated learning in normal form games," Games and Economic Behavior, Elsevier, vol. 3(1), pages 82-100, February.
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