Low information nash equilibria for oligopolistic markets |
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Authors: | James W Friedman |
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Affiliation: | Virginia Polytechnic Institute, Blacksburg, VA 24061, USA |
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Abstract: | This paper deals with an infinite horizon n firm oligopoly in which firms are assumed to have incomplete information about one another's actions and profit functions. An equilibrium concept is defined that is similar to the Nash non-cooperative equilibrium, but is suitable for the information assumptions of the model. The equilibrium uses a type of bounded rationality which makes firms' computations relatively easy. This is due to an implicit assumption that computation is costly and a Bayesian approach is prohibitively costly. This low information Nash equilibrium is proved to exist, and, in addition, an adaptive expectations decision process is described which, if followed by all firms, leads to the low information Nash equilibrium. |
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Keywords: | Non-cooperative equilibrium game theory oligopoly theory bounded rationality supergames |
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