TITLE:
Evolutionarily Stable Conjectures and Social Optimality in Oligopolies
AUTHORS:
Swapnika Reddy Rachapalli, Praveen Kulshreshtha
KEYWORDS:
Conjectural Variations (CV); Consistent Conjectural Variations (CCV); Evolutionarily Stable Strategies (ESS); Quantity Competition; Price Competition; Social Optimality
JOURNAL NAME:
Theoretical Economics Letters,
Vol.3 No.1,
February
26,
2013
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.