Non-Nash equilibria of Darwinian dynamics with applications to duopoly

Paul Rhode, Mark Stegeman

Research output: Contribution to journalArticle

27 Scopus citations

Abstract

Consider a symmetric, differentiated duopoly. If firms' strategy choices, in the repeated game, follow a stochastic Darwinian process, then they cluster around a strategy profile that is typically not a one-shot Nash equilibrium. This profile is invariant under a broad class of transformations of the strategy space (e.g. Bertrand vs. Cournot); this implies that mixing imitative and rational decision-makers can produce purely imitative outcomes. The evolution of objectives consistently distorts behavior toward revenue maximization, and the distortion increases in 'good times' of high demand and low costs. We generalize the results beyond duopoly to symmetric, two-player games.

Original languageEnglish (US)
Pages (from-to)415-453
Number of pages39
JournalInternational Journal of Industrial Organization
Volume19
Issue number3-4
DOIs
StatePublished - Mar 1 2001
Externally publishedYes

Keywords

  • C73
  • D43
  • Duopoly
  • Evolution
  • Imitation
  • L21
  • Relative payoffs
  • Revenue maximization

ASJC Scopus subject areas

  • Industrial relations
  • Aerospace Engineering
  • Economics and Econometrics
  • Economics, Econometrics and Finance (miscellaneous)
  • Strategy and Management
  • Industrial and Manufacturing Engineering

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