engleski

Cooperativeness in duopoly from an evolutionary game theory perspective

In a duopoly analysis companies can partake in different mutual relations. In case when quantity of production is a decision variable, the equilibria can be of either Cournot, Stackelberg or cartel type. In these market structures companies pick different behavioural patterns, thus making different profits. In cooperative equilibrium both companies have an incentive to cheat since an unanimous move can improve their own profit, but since it lowers competitor’s profits in the same time, this equilibrium collapses to Cournot equilibrium where profits are lower. In Stackelberg equilibrium a dominant company yield greater profits on the expense of the lower follower’s profit and the total industry profit in Cournot equilibrium. Therefore this paper is looking for the best long-term behaviour pattern of a company, using a new perspective unifying microeconomic analysis of market structures and evolutionary game theory ; it is assumed that companies pick, with certain probabilities, either cooperative, reactive or dominant strategies. Companies in time adapt their choices by increasing the choice probability of those strategies which fitness is greater than the average profit, applying the replicator dynamics. It is also shown that long-run decisions of companies strongly depend on the starting set of strategies.

Evolutionary game theory ; duopoly ; cooperative strategy ; dominant strategy ; reactive strategy

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