Resource title

Imitators and Optimizers in Cournot Oligopoly

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Resource description

We present a formal model of symmetric n-firm Cournot oligopoly with a heterogeneous population of profit optimizers and imitators. Imitators mimic the output decision of the most successful firms of the previous round a la Vega-Redondo (1997). Optimizers play myopic best response to the opponents' previous output. The dynamics of the decision rules induce a Markov chain. As expression of bounded rationality, firms are allowed to make mistakes and deviate from the decision rules with a small probability. Applying stochastic stability analysis, we characterize the long run behavior of the oligopoly. We find that the long run distribution converges to a recurrent set of states in which imitators are better off than optimizers. This finding appears to be robust even when optimizers are more sophisticated. It suggests that imitators drive optimizers out of the market contradicting a fundamental conjecture by Friedman (1953).

Resource author

Burkhard C. Schipper

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/22850

Resource license

Adapt according to the presented license agreement and reference the original author.