Evolutionarily Stable Conjectures and Social Optimality in Oligopolies

Swapnika Reddy Rachapalli, Praveen Kulshreshtha

Department of Humanities and Social Sciences, Indian Institute of Technology Kanpur, Kanpur, India.

DOI: 10.4236/tel.[phone]                

Abstract

Following the evolutionary game-theoretic approach to analyze Conjectural Variations (CV) in oligopolies, a model is developed to derive the Evolutionarily Stable Strategies (ESS) for quantity-setting and price-setting oligopolies with CV, producing heterogeneous goods. It is shown that ESS coincides with the Consistent CV in the oligopoly model. Earlier studies have demonstrated the above result only for duopolies. It is also shown that the market outcome induced by ESS is socially suboptimal if firms produce heterogeneous products, but can be socially optimal if firms produce homogeneous goods. In general, the market outcome approaches the socially optimal outcome, as the number of firms increases to infinity.

Keywords

Conjectural Variations (CV); Consistent Conjectural Variations (CCV); Evolutionarily Stable Strategies (ESS); Quantity Competition; Price Competition; Social Optimality

Conflicts of Interest

The authors declare no conflicts of interest.

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