Cournot competition, organization and learning

Organization, learning and cooperation

“…This model conforms to previous findings (Barr and Saraceno, 2002;2005) on the relationship between firm profitability, size and the environment it faces. Environmental complexity negatively affects profits, and the tradeoff between speed and accuracy emerges in this setting as well, giving a hump shape relationship between firm size and profit.…”

“…However, our work is different from these models in that we directly model the relationship between the external environmental variables, firm learning and performance. In addition, we explicitly apply this framework to a model of Cournot competition and cooperation, which to our knowledge has not been done before Barr and Saraceno (2005).…”

“…Building on previous work (Barr and Saraceno, 2005), we model the firm as a type of artificial neural network (ANN) that must make output decisions in a Cournot duopoly framework. ANNs are common in computer science and psychology, where they have been used for pattern recognition and modeling of the brain (Croall and Mason, 1992;Skapura, 1996).…”

“…Agents within the firm are required to evaluate data and communicate this evaluation to others who then make final decisions. As discussed in Barr and Saraceno (2002;2005), the benefit to the firm of increased resources devoted to information processing (IP) is better knowledge of the environment; but the costs include the wage of IP agents, and, especially, the time costs involved with processing and communicating this information. Barr and Saraceno (2005) investigate how learning affects a firm's ability to produce along the best response function in a Cournot duopoly game with unknown demand.…”

“…Further we show how environmental complexity affects both optimal organizational size and profits. In Barr and Saraceno (2005) we do not consider the possibility of collusion, in the sense that firms could possibly learn to restrict their outputs, thus gaining larger profits.…”