Discussion papers

CPM-95-06 - 20 March 1995

Axelrod meets Cournot: oligopoly and the evolutionary metaphor, part 1.

Huw David Dixon, and Steve Wallis and Scott Moss

This paper explores the implication of evolutionary models (replicator dynamics) in a simple Cournot duopoly model. A firm type is a linear decision rule in which the firm’s output depends on the other firm’s previous output. First we run an Axelrod Tournament between firm types. The champion firm is a near profit-maximiser. Second, we allow social evolution to occur using replicator dynamics. Here we find that there are very strong forces leading towards a collusive or near collusive outcome, so long as there is not too much “noise” in the dynamics.