Evolutionarily Stable Conjectures and Social Optimality in Oligopolies

Abstract

<p align="justify"> 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. </p

Incentive pass-through for residential solar systems in California

“…The index ranges from 0 to 1, i.e., the percentage of the firm's mark-up to the price.5 The conduct parameter approach was previously known as the conjecture variation approach, which was not without debates in the literature. While there are several outstanding critiques of this approach(Corts, 1999;Reiss and Wolak, 2007), other literature tends to justify its evolutionary consistency(Dixon and Somma, 2003;Possajennikov, 2009;Rachapalli and Kulshreshtha, 2013). Based onJaffe and Weyl (2013), there was a recent resurgence in studies using this approach, both theoretical and empirical (see references cited there).…”