DP1810 Keeping Up With the Joneses: Competition and the Evolution of Collusion in an Oligopolistic Economy

Author(s): Huw David Dixon
Publication Date: March 1998
Keyword(s): aspirations, Average, Evolution, Learning
JEL(s): C7, D4, L13
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1810

An economy consists of many duopolistic markets. Firms must earn normal profits in the long run if they are to survive. Normal profits are interpreted as the long-run limit of average profits in the whole economy. We adopt the aspiration based model of firm behaviour, and link it to the economy with the requirement that in the long run the profit aspiration must be at least as great as normal profits. We assume that the joint profits can be maximized with symmetric payoffs, and with very few other assumptions are able to show that the (almost) global attractor is the cooperative outcome.