Is limit pricing evolutionarily stable?

Date

2003-08-01

Author

Soytaş, Uğur

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We have analyzed the question whether or not limit-pricing behavior can be viewed as a strategy, which survives the replicator dynamics in a game in which firms change strategies through imitation. Our results show that, regardless of the proportion of low cost incumbents in the population, potential entrants that play the strategy "enter" when they observe limit output are wiped out. The unique ESS consists of all low cost incumbents playing the "limit output" strategy, and all high cost incumbents playing the "monopoly output". This ESS includes potential entrants playing "stay out" after observing the limit output, and playing "enter" if monopoly output is observed in the first stage. Hence, limit pricing survives the replicator dynamics and appears in the stable state of the population.

Subject Keywords

Economics and Econometrics, General Business, Management and Accounting

URI

https://hdl.handle.net/11511/47305

Journal

JOURNAL OF EVOLUTIONARY ECONOMICS

DOI

https://doi.org/10.1007/s00191-003-0154-z

Collections

Department of Business Administration, Article

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Citation Formats

U. Soytaş, “Is limit pricing evolutionarily stable?,” JOURNAL OF EVOLUTIONARY ECONOMICS, pp. 281–288, 2003, Accessed: 00, 2020. [Online]. Available: https://hdl.handle.net/11511/47305.