Evolutionary Stability in Asymmetric Oligopoly

22 Pages Posted: 7 Feb 2015

See all articles by Wolfgang Leininger

Wolfgang Leininger

University of Dortmund - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Hamed Markazi Moghadam

University of Dortmund, Ruhr Graduate School in Economics, Students

Date Written: July 6, 2014

Abstract

It is a very well-known result that in terms of evolutionary stability the long-run outcome of a Cournot oligopoly market with finitely many firms approaches the perfectly competitive Walrasian market outcome (Vega-Redondo, 1997). However, in this paper we show that an asymmetric structure in the cost functions of firms may change the long-run outcome. Contrary to Tanaka (1999) we show that the evolutionarily stable price in an asymmetric Cournot oligopoly needs not equal the marginal cost, it may rather equal a weighted average of (different) marginal cost. We apply a symmetrization technique in order to transform the game with asymmetric firms into a symmetric oligopoly game and then extend Schaffer’s definition (1988) of a finite population ESS (FPESS) to this setup. Moreover, we show that the FPESS in this game represents a stochastically stable state of an evolutionary process of imitation with experimentation.

Keywords: Cournot oligopoly; asymmetry; finite population evolutionary stable strategy; stochastic stability

JEL Classification: C72, C73, D43, L13

Suggested Citation

Leininger, Wolfgang and Markazi Moghadam, Hamed, Evolutionary Stability in Asymmetric Oligopoly (July 6, 2014). Ruhr Economic Paper No. 497, Available at SSRN: https://ssrn.com/abstract=2561214 or http://dx.doi.org/10.2139/ssrn.2561214

Wolfgang Leininger (Contact Author)

University of Dortmund - Department of Economics ( email )

D-44221 Dortmund
Germany
+49 231 755 3297 (Phone)
+49 231 755 3027 (Fax)

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Hamed Markazi Moghadam

University of Dortmund, Ruhr Graduate School in Economics, Students ( email )

Hohenzollernstr. 1-3
Essen
Germany

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