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

Author

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  • J. Thijssen

    (Department of Economics, Trinity College)

Abstract

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.

Suggested Citation

  • J. Thijssen, 2005. "Nearly-complete Decomposability and Stochastic Stability with an Application to Cournot Oligopoly," Trinity Economics Papers tep6, Trinity College Dublin, Department of Economics.
    • Handle: RePEc:tcd:tcduee:tep6
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    File URL: http://www.tcd.ie/Economics/TEP/2005_papers/TEP6.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Schipper, Burkhard C., 2009. "Imitators and optimizers in Cournot oligopoly," Journal of Economic Dynamics and Control, Elsevier, vol. 33(12), pages 1981-1990, December.
    2. Josephson, Jens, 2009. "Stochastic adaptation in finite games played by heterogeneous populations," Journal of Economic Dynamics and Control, Elsevier, vol. 33(8), pages 1543-1554, August.
    3. Schipper, Burkhard C., 2009. "Imitators and optimizers in Cournot oligopoly," Journal of Economic Dynamics and Control, Elsevier, vol. 33(12), pages 1981-1990, December.

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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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