Evolutionary models of market structure

Abstract

The dispute on oligopoly theory was commenced by Vega-Redondo (1997) in which he showed that long run outcome of a symmetric Cournot oligopoly game equals the competitive Walrasian. In this dissertation, first we extend an evolutionary game theoretic model to an asymmetric oligopolistic model where we obtain a form of equilibrium so-called Walrasian in Expectation with market price equal to average marginal costs. Then we analyse firm’s competition under relative payoffs maximizing (RPM) behaviour. RPM behaviour is implied by evolutionary stability. We consider a simple model of symmetric oligopoly where firms select a two dimensional strategy set of price and a non-price variable known as quality simultaneously. The role of cross-elasticities of demand will be shown in determining the evolutionary equilibrium. Finally, a nonparametric revealed preference approach will present an empirical content of the evolutionary oligopoly model. Testable restrictions are derived for an evolutionary model of asymmetric oligopoly in which firms have different cost functions to produce a homogenous good. A case study on the crude oil market with main producers is presented and we compare the rejection rates of both Cournot and evolutionary hypotheses.