Convergence in the Finite Cournot Oligopoly with Social and Individual Learning
Univesity of Nantes
French National Center for Scientific Research (CNRS) - Groupe de Recherche en Économie Théorique et Appliquée (GREThA)
November 10, 2009
Convergence to the Nash equilibrium in a Cournot oligopoly is a question that recurrently arises as a subject of controversy in economics. The development of evolutionary game theory has provided an equilibrium concept more directly connected with adjustment dynamics, and the evolutionary stability of the equilibria of the Cournot game have been extensively studied in the literature. Several articles show that the Walrasian equilibrium is the stable ESS of the Cournot game. But no general result has been established for the difficult case of simultaneous heterogenous mutations. Authors propose specific selection dynamics to analyze this case. Vriend (2000) proposes using a genetic algorithm for studying learning dynamics in this game and obtains convergence to Cournot equilibrium with individual learning. The resulting convergence has been questioned by Arifovic and Maschek (2006). The aim of this article is to clarify this controversy. It analyzes the mechanisms that are behind these contradictory results and underlines the specific role of the spite effect. We show why social learning gives rise to the Walrasian equilibrium and why, in a general setup, individual learning can effectively yield convergence to the Cournot equilibrium. We also illustrate these general results by systematic computational experiments.
Keywords: Cournot oligopoly, Learning, Evolution, Selection, Evolutionary stability, Nash equilibrium, Genetic algorithms
JEL Classification: L130, L200, D430, C630, C730working papers series
Date posted: March 12, 2012
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