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

See all articles by Douglas Silveira

Douglas Silveira

University of Alberta - Department of Economics

Silvinha Vasconcelos

Universidade Federal de Juiz de Fora - Department of Economics

Date Written: March 17, 2019

Abstract

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

Suggested Citation

Silveira, Douglas and Vasconcelos, Silvinha, Essays on Duopoly Competition with Asymmetric Firms: Is Profit Maximization Always an Evolutionary Stable Strategy? (March 17, 2019). Annual Conference on Game Theory, 2019, Available at SSRN: https://ssrn.com/abstract=3421397 or http://dx.doi.org/10.2139/ssrn.3421397

Douglas Silveira (Contact Author)

University of Alberta - Department of Economics ( email )

Edmonton, Alberta T6G 2R6
Canada

Silvinha Vasconcelos

Universidade Federal de Juiz de Fora - Department of Economics

Juiz de Fora, Minas Gerais
Brazil

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