Essays on Duopoly Competition with Asymmetric Firms: Is Profit Maximization Always an Evolutionary Stable Strategy?
Annual Conference on Game Theory, 2019
17 Pages Posted: 17 Jul 2019
Date Written: March 17, 2019
We propose both a well-mixed and spatially-structured evolutionary game to analyze the competitive behavior of retail firms in duopolistic markets. Firms from two different populations (high/low efficiency) compete and the available strategies are (i) Profit or (ii) Revenue maximization. Under bounded-rationality assumptions, firms can update their behavior through dynamic learning mechanisms. In addition to a replicator dynamics approach, we develop an agent-based model to increase realism and to capture possible spatial effects on firms’ strategic behavior. A convergence between the methods is observed and, given specific conditions, Revenue maximization may corresponds to an Evolutionary Stable Strategy (ESS).
Keywords: Firms’ Strategic Behavior, Bounded Rationality, Evolutionary Dynamics
JEL Classification: C15, C73, D21, L13
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