keeping up with the joneses competition and the evolution of collusion an economy consists of many markets each of which is a duopoly firms must earn normal profits in the long run if they have to survive normal profits are interpreted as the long run limit of average profits in the whole economy we adopt an aspiration based model of firm behaviour linking it to the economy with the requirement that in the long run the profit aspiration must be at least as great as normal profits we assume that the joint profits can be maximized with symmetric payoffs and with very few other assumptions are able to show that the almost global attractor is the cooperative outcome

oligopoly game price makers meet price takers abstract the paper studies an oligopoly game where firms can choose between price taking and price making strategies on a mixed market price takers are always better off than price makers though the profits of both types decline in the number of price takers we investigate and confront two possibilities of firms decisions about their types forward looking equilibrium reasoning and backward looking individual learning we find that the cournot outcome is the only equilibrium prediction and it is learnable if firms are sufficiently sensitive to profit differences however with a larger number of firms a unilateral deviation from cournot behavior becomes profitable under learning this incentive creates a space for permanent oscillations over different markets with a positive but low number of price takers

a multinomial probit model of stochastic evolution abstract a strategy revision process in symmetric normal form games is proposed following kandori et al econometrica 61 1993 29 members of a population periodically revise their strategy choice and choose a myopic best response to currently observed play their payoffs are perturbed by normally distributed harsanyian trembles so that strategies are chosen according to multinomial probit probabilities as the variance of payoffs is allowed to vanish the graph theoretic methods of the earlier literature continue to apply the distributional assumption enables a convenient closed form characterisation for the weights of the rooted trees an illustration of the approach is offered via a consideration of the role of dominated strategies in equilibrium selection

calculating levels of protection is it always appropriate to use world reference prices based on current trading status abstract protection measures such as the nominal protection coefficient npc the effective protection coefficient epc the producer subsidy equivalent pse and the consumer subsidy equivalent cse are conventionally calculated using world reference prices based on current trading status under certain conditions the conventional approach can lead to incorrect estimation of the degree and sometimes even the direction of protection this paper spells out the conditions under which use of world reference prices based on current trading status is incorrect and presents data for wheat in pakistan to illustrate how failure to consider these conditions can lead to misleading policy recommendations

why do you hate me on the survival of spite abstract spite involves harming others without good reasons it may survive in small populations or on markets with strategic substitutes we consider situations where selfishness helps efficiency here spite endangers efficiency but is wiped out by evolutionary forces

on the equivalence of nash and evolutionary equilibrium in finite populations abstract this paper provides sufficient and partially necessary conditions for the equivalence of symmetric nash and evolutionary equilibrium in symmetric games played by finite populations the conditions are based on generalized constant sum and smallness properties the latter of which is known from models of perfect competition and large games the conditions are illustrated on examples including oligopoly games

cooperation through imitation abstract this paper characterizes long run outcomes for broad classes of symmetric games when players select actions on the basis of average historical performance received wisdom suggests that when agent s interests are partially opposed behavior is excessively competitive keeping up with the jones lowers everyones welfare here we study the long run consequences of imitative behavior when agents have sufficiently long memories and evaluate past actions in terms of weighted average payoff imitation robustly leads to cooperative outcomes with highest symmetric payoffs in the long run furthermore lengthening memory reinforces this effect this provides a rationale for example for collusive cartel like behavior without collusive intent

supply chain disruption management and evolutionarily stable strategies of retailers in the quantity setting duopoly situation with homogeneous goods this paper develops an indirect evolutionary game model with two vertically integrated channels to study evolutionarily stable strategies ess of retailers in the quantity setting duopoly situation with homogeneous goods and analyzes the effects of the demand and raw material supply disruptions on the retailers strategies every channel consists of one manufacturer and many a sufficiently large number of retailers that sell products in different markets by adopting two pure marketing strategies profit maximization and revenue maximization we find that revenue maximization strategy may prevail and profit maximization strategy may become extinct two strategies may coexist i e all retailers in one channel will choose profit maximization strategy and all retailers in the other will choose revenue maximization strategy the ess of retailers depends on the relative size of the market scale and unit cost the supply chain disruptions affect the ess of retailers we also introduce a recovery model of the supply chain under disruptions and illustrate the effect of disruptions on the ess and on the average profits of channels in a market using a numerical simulation

an evolutionary model of bertrand oligopoly we analyze the long run outcome of markets in which boundedly rational firms with a decreasing returns to scale technology compete in prices the behavior of these firms is based on limitation of success and experimentation in this framework we introduce a new approach to model boundedly rational behavior based on the idea of behavioral principles i e formal descriptions even with the simplest ones the result is that the prices announced are a strict refinement of the set of nash equilibria with more sophisticated behavioral principles the long run outcome corresponds to the concept of central prices wich are also nash equilibria introduced here this is a robust and clear cut prediction wich under quadratic costs and arbitrary demand essentially coincides with the walrasian equilibrium

altruistic versus egoistic behavior in a public good game this paper analyzes an evolutionary version of the public good game in which boundedly rational agents can use imitation and best reply decision rules several possibilities for both decision rules to be present in the population are considered i show that altruistic behavior might survive if switching between the decision rules occurs less often than the probabilities of errors in choosing a strategy and if local neighborhoods are not too small or too large

evolutionary equilibrium in contests with stochastic participation entry effort and overdissipation this paper examines the evolutionary stability of behaviour in contests where players participation can be stochastic we find for exogenously given participation probabilities players exert more effort under the concept of a finite population evolutionarily stable strategy fpess than under nash equilibrium ne we show that there is ex ante overdissipation under fpess for sufficiently large participation probabilities if and only if the impact function is convex with costly endogenous entry players enter the contest with a higher probability and exert more effort under fpess than under ne importantly under endogenous entry overdissipation can occur for all tullock contest success functions in particular those with concave impact functions

competitive behavior in market games evidence and theory we explore whether competitive outcomes arise in an experimental implementation of a market game introduced by shubik 1972 market games obtain pareto inferior strict nash equilibria in which some markets are closed we find that subjects do not coordinate on autarkic nash equilibria but favor more efficient nash equilibria in which all markets are open as the number of subjects participating in the market game increases the nash equilibrium they achieve approximates the associated walrasian equilibrium of the underlying economy motivated by these findings we investigate theoretically whether evolutionary forces lead to walrasian outcomes in market games we introduce a strong version of evolutionary stable strategies sess f orfinite populations our concept requires stability against deviations by coalitions of agents a small coalition of trading agents is sufficient for pareto improving trade to be generated in addition provided that agents lack market power nash equilibria corresponding to approximate competitive outcomes constitute the only approximate sess

mistakes in cooperation the stochastic stability of edgeworth s recontracting in an exchange economywith a finite number of indivisible goods we analyze a dynamic trading process of coalitional recontracting where agents may make mistakes with small probability we show first that the recurrent classes of the unperturbed mistake free process consist of i all core allocations as absorbing states and ii cycles of non core allocations next we introduce a perturbed process where the resistance of each transition is a function of the number of agents that make mistakes do not improve in the transition and of the seriousness of each mistake if preferences are always strict we show that the unique stochasticallystable state of the perturbed process is the walrasian allocation in economies with indifferences non core cycles are sometimes stochastically stable while some core allocations are not

an evolutionary analysis of insurance markets with adverse selection abstract the equilibrium nonexistence problem in rothschild and stiglitz s insurance market is reexamined in a dynamic setting insurance firms are boundedly rational and offer menus of insurance contracts which are periodically revised profitable competitors contracts are imitated and loss making contracts are withdrawn occasionally a firm experiments by withdrawing or innovating a random set of contracts we show that rothschild and stiglitz s candidate competitive equilibrium contracts constitute the unique long run market outcome if innovation experiments are restricted to contracts which are sufficiently similar to those currently on the market

aggregate comparative statics abstract in aggregative games each player s payoff depends on her own actions and an aggregate of the actions of all the players many common games in industrial organization political economy public economics and macroeconomics can be cast as aggregative games this paper provides a general and tractable framework for comparative static results in aggregative games we focus on two classes of games 1 aggregative games with strategic substitutes and 2 nice aggregative games where payoff functions are continuous and concave in own strategies we provide simple sufficient conditions under which positive shocks to individual players increase their own actions and have monotone effects on the aggregate the results are illustrated with applications to public good provision contests cournot competition and technology choices in oligopoly

welfare and barriers to entry an empirical study the early tests for the existence of barriers to entry e g comanor wilson 8 were based on regressing various measures of profitability on barriers and other structural variables the results of these tests were widely debated a different approach undertaken by dale orr 24 was to use entry de novo as the dependent variable and examine whether so called barriers to entry indeed impeded or retarded entrants masson and shaanan 19 combined these two approaches and examined profits and entry simultaneously on the theoretical side the arguments on the subject of barriers have been intense one reason for the keen interest in this topic has been the fear of misguided policy resulting from a misunderstanding of the role of barriers salop 25 suggests that barriers to entry might be divided into two categories innocent and strategic barriers von weizsacker 33 and demsetz 10 offer an alternative classification based on a different definition of barriers to entry this definition deals directly with the negative connotations sometimes associated with barriers von weizsacker 33 400 writes a barrier to entry is a cost of producing which must be borne by a firm which seeks to enter an industry and which implies a distortion in the allocation of resources from the social point of view von weizsacker demonstrates within the context of his models cournot and rational expectations that expenditures to deter entry are not necessarily socially harmful thus an increase in minimum efficient scale caused by exogenous factors or an increase in spending on goodwill a variant of product differentiation may be welfare enhancing demsetz

survival at the center the stability of minimum differentiation abstract we model a hotelling market with multidimensional product differentiation in an evolutionary framework both evolutionary stability in the sense of schaffer 1989 and stochastic stability following kandori et al 1993 young 1993 are analyzed it is shown that firms move towards the center in product space i e a principle of minimum differentiation on all dimensions of the product space applies

competitive persuasive advertising under consumer loss aversion abstract i present a model to describe the effects of persuasive advertising targeted at consumers with expectation based reference dependent preferences persuasive advertising is competitive and increases the salience of advertised products while decreasing the salience of competing products consumers gain loss utility associated with the expectation to buy the most salient product is inflated while gain loss utility associated with the expectation to buy the least salient product is deflated i show that under moderate levels of loss aversion and product differentiation persuasive advertising has strictly anti competitive effects whenever consumers are aware of prices but uncertain about their individual match value from a purchase

convergence in the finite cournot oligopoly with social and individual learning abstract convergence to the nash equilibrium in a cournot oligopoly is a question that recurrently arises as a subject of controversy in economics the development of evolutionary game theory has provided an equilibrium concept more directly connected with adjustment dynamics and the evolutionary stability of the equilibria of the cournot game have been extensively studied in the literature several articles show that the walrasian equilibrium is the stable ess of the cournot game but no general result has been established for the difficult case of simultaneous heterogenous mutations authors propose specific selection dynamics to analyze this case vriend 2000 proposes using a genetic algorithm for studying learning dynamics in this game and obtains convergence to cournot equilibrium with individual learning the resulting convergence has been questioned by arifovic and maschek 2006 the aim of this article is to clarify this controversy it analyzes the mechanisms that are behind these contradictory results and underlines the specific role of the spite effect we show why social learning gives rise to the walrasian equilibrium and why in a general setup individual learning can effectively yield convergence to the cournot equilibrium we also illustrate these general results by systematic computational experiments

the evolution of exchange abstract stochastic stability is applied to the problem of exchange we analyze the stochastic stability of two dynamic trading processes in a simple housing market in both models traders meet in pairs at random and exchange their houses when trade is mutually beneficial but occasionally they make mistakes the models differ in the probability of mistakes when all mistakes are equally likely the set of stochastically stable allocations contains the set of efficient allocations when more serious mistakes are less likely the stochastically stable states are those allocations always efficient with the lowest envy level

a note on imitation based competition in common pool resources the tragedy of the commons refers to the dissipation of common ressources when several appropriators have access to it the nash equilibrium in common pool resource games describes such an overexploitation phenomena however some empirical facts and experimental results suggest that the degradation may exceed the nash equilibrium prediction rapid exhaustion of resources can then be explained by learning processes based on imitation behavior indeed when the number of players is limited the evolutionary outcome implies a higher level of dissipation than the nash equilibrium

an illustration of the essential difference between individual and social learning and its consequences for computational analyses abstract drawing a conclusion from recent insights in evolutionary game theory we show that a so called spite effect implies that there is an essential difference between individual and social learning we illustrate its consequences for the choice of computational tools in economics and social settings in general by analyzing two variants of a genetic algorithm

wholesale pricing and evolutionarily stable strategies of retailers with imperfectly observable objective abstract this paper develops a one population indirect evolutionary game model of a supply chain with one manufacturer supplier and many a sufficiently large number of retailers to study how the retailer s marketing objective depends on the wholesale price its observability the error probability of the observed result on the rival s preference the market scale and the retailer s bargaining power this paper also presents an algorithm for computing the optimal wholesale price of the manufacturer we find that the profit revenue maximization behavior is an evolutionarily stable marketing strategy if the wholesale price is sufficiently high low given an appropriate wholesale price the revenue maximization behavior coexists with the profit maximization behavior in the retailers population the larger the market scale the stronger the motivation of the retailer to take profit maximization behavior due to a higher wholesale price the cross effects of the retailer s reservation payoff and the other factors should be considered in the decision process

imitators and optimizers in cournot oligopoly we analyze a symmetric n firm cournot oligopoly with a heterogeneous popu lation of optimizers and imitators imitators mimic the output decision of the most successful firms of the previous round a la vega redondo 1997 optimizers play a myopic best response to the opponents previous output firms are allowed to make mistakes and deviate from the decision rules with a small probability apply ing stochastic stability analysis we find that the long run distribution converges to a recurrent set of states in which imitators are better o than are 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 funda mental conjecture by friedman 1953

evolutionary competition in a mixed market with socially concerned firms abstract in this paper we study an oligopoly market where profit maximizing firms and socially concerned firms compete in quantities confronting remarks by milton friedman and gary becker we are using an evolutionary setting to investigate the endogenous choice of the proper objective of business firms and the influence of product differentiation on the long run survival of firms which pursue non profit motives we find that firms which consider a combination of profit and consumer welfare can indeed have larger market shares and profits than their profit maximizing rivals one insight is that it might pay off for shareholders to consider stakeholder welfare but that the level of social concern should not be too high based on a strategy s profitability we consider asynchronous evolutionary updating with firms selecting nash quantities or choosing best replies to the expected market quantity here we observe that the consumers willingness to pay a price premium for products is crucial for the long run survival of socially concerned firms depending on the degrees of product differentiation and social concern long run outcomes consist either of both types of firms or only one type of firm if the firms propensity to switch between a social or a profit maximizing strategy is sufficiently large steady states are unstable and even complicated dynamics can occur

estimating the level of protection the implications of seasonal price fluctuations abstract the nominal protection coefficients npcs effective protection coefficients epcs and producers subsidy equivalents pses are usually estimated from annual prices which are the unweighted average of seasonal prices in the presence of seasonal fluctuations in prices the npcs epcs and pses estimated from annual data can seriously over underestimate the actual protection received by the producers and consumers the bias results from the fact that price and quantity traded normally relate negatively and unweighted average price consistently overestimates the trade weighted average price the bias in the npc estimates is demonstrated both theoretically and empirically in most cases quantity traded at each price is not known and the paper suggests empirical methods for estimating the trade weights

imitation and price competition in a differentiated market abstract we study the stable market outcome that evolves in a spatially differentiated market when price competing firms choose actions by imitation of the most profitable firm we compare and contrast the stable outcomes under two imitation procedures one where each firm immediately imitates the most profitable firm and the other when a firm imitates another firm only if it is more profitable while being sufficiently similar in context of the market segment it operates in or sufficiently close in either case the symmetric pure strategy nash equilibrium is always a stable outcome however when imitation of the most profitable firm is immediate and market differentiation is moderate states with prices lower than the nash equilibrium are also stable in contrast when imitation of the most profitable firm is more gradual and market differentiation is below a threshold states with prices above the nash equilibrium are also stable thus while competitive evolutionary pressure in this imitation based model does result in the nash equilibrium always being stable other outcomes may be stable as well interestingly the states that are stable under gradual imitation give the firms a higher profit than the stable states under immediate imitation

a new venture s optimal entry time abstract we formulate a model of the decision of when a new venture should enter the market based on the uncertain evolution over time of environmental volatility and market competition we characterize the performance maximizing time to enter the market and show how this entry time is affected by changes in the business environment by further focusing our modeling assumptions we are able to translate our time based criteria into environmental terms and propose that management set a target environment level that must be met before entering the market we also demonstrate that management should adjust this target over time to respond to changes in the business context this modeling feature is important because it allows for a better assessment of when to enter a market based on future performances we translate the model s theoretical insights into testable propositions and explore possible ways to operationalize these for empirical testing

advance production and cournot outcomes an experimental investigation abstract an experiment designed to assess the effects of advance production decisions on posted offer market performance is reported six of the twelve triopolies were conducted under standard posted offer rules in the remaining markets sellers made binding production commitments prior to posting prices an alteration that shifts the unique stage game nash equilibrium from the competitive to the cournot outcome as predicted advance production decisions raised prices and lowered output nevertheless stable cournot outcomes were never observed

evolutionary stability and nash equilibrium in finite populations with an application to price competition abstract schaffer schaffer m e 1988 evolutionarily stable strategies for a finite population and a variable contest size journal of theoretical biololgy 132 469 478 proposed a concept of evolutionary stability for finite population models that has interesting implications in economic models of evolutionary learning since it is related to perfectly competitive equilibrium the present paper explores the relation of this concept to nash equilibrium in particular classes of games including constant sum games games with weak payoff externalities and games where imitative decision rules are individually improving an illustration of the latter is provided in the context of bertrand oligopoly with homogeneous product which allows for a characterization of the set of evolutionarily stable prices

strategic entry deterrence in analyzing deterrence of large scale entry two classes of entry barriers may be distinguished an innocent entry barrier is unintentionally erected as a side effect of innocent profit maximization in contrast a strategic entry barrier is purposely erected to reduce the possibility of entry two types of innocent barriers may also be distinguished a postentry absolute advantage has the property that if entry did occur the established firm would be at a profit advantage over the entrant examples are superior technology or product design patents and lower input prices a preentry asymmetry advantage arises from the fundamental preentry asymmetry between established firm and potential entrant before the entrant makes his entry decision the established firm has already committed resources this prior existence gives first move advantages the preentry asymmetry is independent of symmetry or asymmetry in the rules the equilibrium concept of the postentry game that might ensue even if the postentry game will be played according to nash cournot or entrant as leader rules the preentry leadership

the evolution of walrasian behavior consider an evolutionary context where a given number of quantity setting oligopolists tend to mimic successful behavior occasionally experimenting with some small probability in this context it is shown that the unique long run outcome of the process has all firms playing walrasian i e choosing an output that maximizes profits when taking the market clearing price as given

cournot competition imitation and information networks abstract we develop a stochastic learning model of cournot competition on arbitrary networks where firms can only observe local information and imitate the locally best the walrasian equilibrium is uniquely selected for any connected information network

tax competition relative performance and policy imitation rather than about their absolute payoffs governments in fiscal competition often seem to care about their performance relative to other governments moreover they often appear to mimic policies observed elsewhere i study such behavior in a standard tax competition game both with relative payoff concerns and for imitative policies evolutionary stability for games with finitely many players is the appropriate solution concept independently of the number of jurisdictions involved an evolutionarily stable tax policy coincides with the competitive outcome of a tax competition game with infinitely many players it thus involves drastic efficiency losses

the evolution of preferences and competition a rationalization of veblen s theory of invidious comparisons we examine how preferences evolve by natural selection in a competitive environment similar to that characterizing much of our evolutionary past we find that the evolutionarily stable preferences in this context exhibit a concern not only for absolute payoffs but also for relative payoffs and that this intensifies the degree of competition relative to what obtains when players consider only absolute payoffs we argue that this has consequences for the equilibrium population size we argue that the premise of this analysis is consistent with the available anthropological evidence and that the prediction is broadly consistent with the findings of experimental game theory

price taking behavior versus continuous dynamic optimizing abstract in a quantity competition oligopoly previous studies have shown that a price taking firm can outperform any rival with identical technology that produces at a different output level at any intertemporal equilibrium this research seeks to examine this seemingly counter intuitive fact in a heterogeneous duopoly consisting of an adaptive price taker and a dynamic optimizer who dynamically optimizes its either absolute or relative profit stream over an infinite planning horizon with conventional economic assumptions the hamiltonian system always converges to a saddle point if goal of the dynamic optimizer is absolute profit the price taker produces more than the dynamic optimizer at the equilibrium around which there exists a long run relative profitability portion for the price taker consequently the price taker unconsciously makes higher relative profit than the dynamic optimizer in the long run in contrast if the dynamic optimizer pursues the relative profit both firms produce at the competitive level at the equilibrium while the whole optimal path lies in the relative profitability regime of the dynamic optimizer so that it will enjoy a higher profit than the price taker before reaching equilibrium these results provide economical justification for ever growing evolutionary game theoretical literatures in appreciating price taking behavior and additionally clarify possible misunderstandings in interpreting their conclusions

us and them the origin of identity and its economic implications we investigate the origins of identity and the innate proclivity to draw a distinction between insiders and outsiders we propose an evolutionary explanation we argue that identity arises because it facilitates survival in an evolutionary setting we endogenize preferences and demonstrate that the evolutionarily stable preferences fashioned by natural selection would draw a distinction between insiders and outsiders we then work out the implications of such preferences in two contemporary scenarios one entailing rent seeking behavior and the other involving public good provision our results are in conformity with empirical evidence

social costs of oligopoly and the value of competition in this study we present a new methodology for estimating welfare losses caused by market power we depart from past studies by explicitly taking into account different levels of market power we provide estimates of a actual social costs arising from existing market structures and b expected monopoly social costs that would occur if there were no competition actual or potential the difference between actual and monopoly welfare losses represents the value of competition in existing markets we further estimate the separate contributions of actual and potential competition to this value our methodology is based upon an empirical model of oligopoly behaviour and limit pricing from this model we estimate the markup which would occur were there no competition we use this markup in turn to estimate industry demand elasticity at the monopoly price with this elasticity and the assumption of linear demand we can characterise demand cost and welfare conditions at each equilibrium monopoly actual and competitive with this new methodology and some other modifications of earlier techniques we provide not only new estimates of welfare losses but also estimates of the value of competition under existing conditions we find that the actual deadweight loss triangle averages 2 9 of value of shipments for a sample of 37 industries we also estimate that were these industries to maximise joint profits with no threat of entry the welfare loss would be i i 6 the difference 8 7 we attribute to the beneficial effects of potential competition 4 9 and actual competition 3 8 our monopoly benchmark thus yields additional understanding of the value of competition we cannot represent our study as having solved all of the problems associated with social cost estimation of monopoly power indeed given general equilibrium problems associated with horizontal vertical and cross industry aggregation interacting with the second best problem we doubt that all the problems can be solved although we can point out some of the potentials for bias after presenting our estimates we discuss the implications of sampling methodology and aggregation problems demonstrating that potentially strong but possibly offsetting biases exist in all studies including ours

a positive approach to non cooperative games abstract population steady states are defined for non cooperative games played repeatedly by individuals drawn from large populations these steady states balance the tendencies of immigration to an emigration from strategies according to certain simple measures of their relative performances approximate values for these steady states are computed for some examples and appear intuitively more plausible as descriptors of play than do nash equilibria

an experimental investigation of the impact of information on competitive decision making managers often employ market response models as decision aids and historical information of competitors market outcomes to aid their competitive decisions in oligopolistic settings however little is known about how access to a decision aid or the availability of competitors market outcomes impact a firm s competitive decisions e g prices or market outcomes resulting from those decisions e g profits or how managers make these decisions across such informational conditions hence the objective of this paper is twofold first we investigate whether access to a decision aid and historical information of competitors outcomes yields more or less competitive decisions and outcomes second we determine which learning constructs such as choice reinforcement and beliefs about projected profits best explain competitive actions across various information conditions we find that relative to the availability of competitive information access to a decision aid has a larger effect on lowering prices and profits we also find that in two firm markets price competition is even more intense than in five firm markets similarly the availability of market share information leads to more aggressive pricing even when profits are held constant finally we outline the implications of our findings in making managerial resource allocations to market research endeavors

cournot vs walras a reappraisal through simulations abstract best reply behavior in cournot oligopolies generally leads to cournot nash equilibrium but imitative behavior selects the walrasian equilibrium as the unique stochastically stable state previous work alos ferrer 2004 showed that in the presence of memory imitative behavior leads to a non trivial dynamics selecting all quantities between the cournot and walrasian outcomes however the scope of previous results was limited to specific assumptions on demand and cost functions and did not provide information on the shape of the distribution of outcomes we use computational simulations to address these limitations we show that the selection result for non trivial memory holds beyond the set of well behaved cournot games previously analyzed further we find that in cournot games the limit distribution of long run outcomes is highly skewed towards the walrasian quantity although longer memory increases the importance of the cournot equilibrium the competitive outcome remains the dominant prediction

evolution in economic games abstract this paper examines the conditions under which evolutionary processes select equilibrium strategies of agents or firms under plausible dynamics optimal selection takes place provided that economic agents are small relative to the environment that is each such agent has a negligible effect on others payoffs however when this assumption is not met survival need not imply optimality examples in the contexts of bargaining bidding and market competition are presented

conspicuous by its absence ethics and managerial economics this paper gives prescriptions for introducing ethical concerns into the economic theory of the firm topics include social responsibility corporate governance profit maximization competition barriers collusion the market system and welfare economics the need for such prescriptions is based on a content analysis of 21 managerial economics texts for their coverage of ethics my analysis finds that substantive discussions of ethics are conspicuous by their absence as ethical breaches can involve significant monetary damages to a firm particularly through adverse market reactions moral reasoning abilities can complement analytical skills consequently my analysis demonstrates how ethics figure into the opportunity costs of managerial decision making which is central to the economic definition of profit

the evolutionary logic of honoring sunk costs i introduction economists claim that sunk costs should not figure in current decision making because by definition these expenditures cannot be retrieved and should be treated as bygones but there is a large literature both experimental and anecdotal in which people are observed to waste resources by honoring bygones that could not possibly make them better off see e g arkes and blumer 1985 arkes and ayton 1999 mcafee mialon and mialon 2010 thaler 1980 such excess in wasting resources is unlikely to have been tolerated by nature in the process of evolution if it did not serve some purpose to enhance fitness in our remote past the purpose of this study is to suggest such a function whereby evolutionary processes have hardwired a concern for sunk costs in human decision making 1 the concept of honoring sunk costs has been referred to in the literature as the concorde fallacy 2 arkes and blumer 1985 have a number of other examples of good money being thrown after bad economists have provided various explanations for why sunk costs appear salient to humans kanodia bushman and dickhaut 1989 and prendergast and stole 1996 propose a theory where reputational effects make agents unwilling to change their decisions mcafee mialon and mialon 2010 have suggested several models involving information content reputation or constraints on decision making that provide rational reasons for taking sunk costs into account likewise baliga and ely 2011 have proposed a model in which sunk costs may acquire salience as a memory kludge because they may contain information about the value of a project previously initiated but whose value has now been forgotten carmichael and macleod 2003 have proposed a model where in a bilateral bargaining situation the norm of taking account of sunk costs resolves the hold up problem that typically results in underinvestment thaler 1980 arkes and blumer 1985 and whyte 1986 suggested a prospect theory approach to understanding sunk cost effects arkes and blumer 1985 the philosopher nozick 1993 and others have argued that honoring sunk costs can alleviate problems of time inconsistency and temptation john may believe that going to the theater is a good thing but when the time comes he cannot rouse himself to do so because it would require relinquishing whatever else appears appealing at the time to circumvent this john buys tickets in advance as a precommitment device but to do this he must believe in the first place that his future self is going to honor sunk costs 3 whatever the reason for the time inconsistent preferences say hyperbolic discounting the honoring of sunk costs may be used to remedy the problem of time inconsistency but nozick for example offers no reason for why sunk costs are honored in the first place we offer an evolutionary reason to suggest why nature may have hardwired a proclivity in humans to honor sunks costs a reason that differs from those offered in the articles cited above we propose that the built in salience of sunk costs is an adaptation to the problem of self control self control problems may arise in decision making because contrary to our untutored perceptions the human brain has a triune 4 rather than a unitary structure maclean 1989 panksepp 1998 because of the way the brain has evolved different regions within it defined by their own neuroanatomical and neurochemical features deal with different aspects of action and behavior although interconnected through chemical and neuronal pathways the different control centers tend to act autonomously and may conflict in their responses to stimuli when the emotional or motivational centers which lie in the sub cortical limbic system push us to certain actions that the rational persona in the cortex wishes to deny there is a conflict and the problem of self control arises panksepp 1998 301 notes

putting on a tight leash and levelling playing field an experiment in strategic obfuscation and consumer protection the paper reports the results of an experiment where asymmetric sellers of a product can obfuscate the market we show that policy measures may have unintended effects of increasing obfuscation incentives we find that policies that limit the effectiveness of obfuscation and policies that promote parity between firms can lead less prominent firms to increase their obfuscation efforts despite this unintended effect however the former type of policies is effective in boosting consumer welfare

on the evolution of comparative advantage in matching models abstract this paper examines whether comparative advantage is the long run outcome of an evolutionary process in the open economy it formalizes the notion that natural selection eliminates inefficient firms and thus leads to stable and perhaps efficient patterns of world trade instead of assuming the existence of a walrasian auctioneer we study two simple matching processes that coordinate trade between firms our central result is that specialization according to comparative advantage with the larger country possibly incompletely specialized is the unique evolutionarily stable state of the world economy

decentralized redistribution in a laboratory federation abstract the idea of laboratory federalism provides a strong argument in favor of fiscal decentralization it views autonomous jurisdictions in a federation as laboratories where new policies can be tested at low risk for the entire system if successful these policies will spread out by imitation otherwise they will be discarded studying this idea in a dynamic setting of fiscal competition we show that due to externalities between jurisdictions policies that appear successful and are therefore mimicked do not necessarily enhance welfare and vice versa specifically in the classical framework of decentralized rich to poor income redistribution with labor mobility the long run outcome entails a complete breakdown of redistribution with zero subsidies to the poor everywhere

the measurement of agricultural price distortion in developing countries the most common means of measuring agricultural price distortion in less developed countries has been through the estimation of variously defined nominal protection coefficients the objectives of this article are a to demonstrate that the coefficients which have been employed are inadequate for measuring price distortion b to develop a suitable method for measuring distortion at each point on domestic marketing chains and c to demonstrate using the example of maize in kenya the potential magnitude and direction of the differences between the conventional coefficients and the distortion coefficients developed in the article

evolution to equilibrium in an asymmetric oligopoly with differentiated goods abstract we present results on finite population evolutionarily stable strategies esss and stochastically stable states for a model of evolution with an imitative rule of strategy choice in an asymmetric oligopoly with differentiated goods and two groups of firms one group of low cost firms and one of high cost firms the firms play price setting and quantity setting oligopoly games under linear demand functions we will show that the stochastically stable state in a price setting oligopoly and that in a quantity setting oligopoly coincide

agricultural incentives in developing countries measuring the effect of sectoral and economywide policies the impact of sector specific direct and economywide indirect policies on agricultural incentives for 18 developing countries for the period 1975 84 are estimated the direct effect is measured by the proportional difference between the producer price and the border price adjusting for distribution storage transport and other marketing costs the indirect effect has two components 1 the impact of the unsustainable portion of the current account deficit and of industrial protection policies on the real exchange rate and thus on the price of agricultural commodities relative to nonagricultural nontradables and 2 the impact of industrial protection policies on the relative price of agricultural commodities to that of nonagricultural tradable goods the authors found that a in almost all cases the direct effect is equivalent to a tax on exportable goods and to a subsidy for importables b the indirect effect also taxes agriculture and dominates the direct effect and c the direct policies for both importables and exportables stabilize domestic producer prices

cooperation as a result of learning with aspiration levels abstract it is shown that a win stay lose shift behavior rule with endogenous aspiration levels yields cooperation in a certain class of games interaction takes place in many groups markets or locations simultaneously and the aspiration level in each round equals the current population average the class of games includes the prisoner s dilemma and cournot oligopoly and thus yields an explanation for cooperation and collusion

through trial and error to collusion in this article we study a very simple trial and error learning process in the context of a cournot oligopoly without any knowledge of the payoff functions players increase respectively decrease their quantity as long as this leads to higher profits we show that despite the absence of any coordination or punishing device this process converges to the joint profit maximizing outcome

are profit maximisers the best survivors a darwinian model of economic natural selection abstract this paper demonstrates that the friedman conjecture that profit maximisation summarises appropriately the conditions for firm survival is not generally true if firms have market power profit maximisers are not necessarily the best survivors because of the possibility of spiteful behaviour of the following kind say a firm forgoes profit maximisation and thus decreases its survival chances but its deviation from maximisation harms its profit maximising competitors more than itself though the firm will be less likely to survive than it would if it maximised its profits it will still be more likely to survive than its competitors

the long run benefits of chaos to oligopolistic firms abstract conventional economic beliefs that equilibrium is better than disequilibrium and stability is better than fluctuation are challenged with a heterogeneous oligopolistic model that consists of a naive firm and a group of sophisticated firms the naive firm is assumed to adopt a simple cobweb strategy while the sophisticate firms who command all market information form a collusion and best respond the naive firm s current action when the market equilibrium is unstable the naive firm is able to turn an explosively diverging market into a bounded but chaotic one by adopting simultaneously a cautious adjustment strategy that is limiting the growth rate of output there exists an upper bound such that as long as the growth rate does not exceed this bound the average profits made by all oligopolistic firms are higher than their respective equilibrium profits moreover the average economic surplus can also be higher than the equilibrium surplus in this sense chaos is beneficial not only to all oligopolistic firms but also to the economy as a whole

imitators and optimizers in a changing environment abstract we analyze the repeated interaction between an imitating and a myopically optimizing player in an otherwise symmetric environment of changing marginal payoff focusing on finite irreducible environments and the case of strategic substitutes we unfold a trade off between the degree of interaction and the size of environmental shocks the optimizer outperforms the imitator if interaction is weak or shocks are large as to the case of duopoly this translates into small cross price elasticities or large shocks in marginal cost and or the maximum willingness to pay in these cases a changing environment creates selection pressure against imitative behavior

feedback and dynamics in public good experiments in this paper we study the effects of providing additional feedback about individual contributions and or earnings on contributions and the dynamics of contributions in a repeated public good game we include treatments where subjects can freely choose whether to obtain additional information about individual contributions or individual earnings we find that in the aggregate contributions are lower when feedback on earnings is provided compared to when feedback on contributions is provided we also find that there exist substantial but intuitively appealing differences in the way individuals react to feedback particularly individuals with a high propensity to contribute tend to imitate the highest contributor more often and are more inclined to obtain feedback about individual contributions compared to individuals with a lower propensity to contribute

death of the lethargic effects of expansion into new technical subfields on performance in a firm s base business this paper finds that industry incumbents that do not expand into new technical subfields tend to fare poorly in their established businesses even if the market for the established products continues to exist firms that expand from their established businesses survive longer and achieve greater subsequent market share than competitors that do not expand by some measures however a failed attempt to expand into a new subfield may be even more harmful to a base business than nonexpansion the study employs conventional and accelerated event time regression models to analyze market share and survival the sample which includes 371 incumbents in four base subfields of the medical diagnostic imaging industry between 1953 and 1989 examines performance following the emergence of five new technical subfields of the industry

cournot versus walras in dynamic oligopolies with memory abstract this paper explores the impact of memory in cournot oligopolies where firms learn through imitation of success as suggested in alchian j polit econ 57 1950 211 and modeled in vega redondo econometrica 65 1997 375 as long as memory includes at least one period the long run outcome corresponds to any quantity between the cournot one and the walras one the evolutionary stability of the walrasian outcome relies on interfirm comparisons of simultaneously observed profits i e whether a firm earns more than others in a given period whereas the stability of the cournot nash equilibrium is derived from intertemporal comparisons of profits for each given firm i e whether a deviation pays off for that firm

cournot competition organization and learning abstract we model firms output decisions in a repeated duopoly framework focusing on three interrelated issues 1 the role of learning in the adjustment process toward equilibrium 2 the role of organizational structure in the firm s decision making and 3 the role of changing environmental conditions on learning and output decisions we characterize the firm as a type of artificial neural network which must estimate its optimal output decision based on signals it receives from the economic environment which influences the demand function via simulation analysis we show 1 how organizations learn to estimate the optimal output over time as a function of the environmental dynamics 2 which networks are optimal for each level of environmental complexity and 3 the equilibrium industry structure