Non-Nash equilibria of Darwinian dynamics with applications to duopoly

Paul Rhode, Mark W Stegeman

Research output: Contribution to journalArticle

27 Citations (Scopus)

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 2001
Externally publishedYes

Fingerprint

Random processes
Costs
Duopoly
Nash equilibrium
Decision maker
Firm strategy
Revenue maximization
Stochastic processes
Repeated games
Cournot

Keywords

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

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance

Cite this

Non-Nash equilibria of Darwinian dynamics with applications to duopoly. / Rhode, Paul; Stegeman, Mark W.

In: International Journal of Industrial Organization, Vol. 19, No. 3-4, 03.2001, p. 415-453.

Research output: Contribution to journalArticle

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