Ruhr Economic Papers

Ruhr Economic Papers #497

Evolutionary Stability in Asymmetric Oligopoly. A Non-Walrasian Result

by Wolfgang Leininger and Hamed M. Moghadam

RGS, TU Dortmund, 08/2014, 20 S./p., 8 Euro, ISBN 978-3-86788-570-6 DOI: 10.4419/86788570

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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.

JEL-Classification: C72, C73, D43, L13

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

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