The paradigm of perfect competition in Economics is based on the assumption that all market participants take all
prices as given. This assumption is thought to be justified for markets with many buyers and many sellers, where
each market participant is small relative to market size. If this is not the case, we say that agents have market power
and behave not competitively, but strategically. Using recent methods from Evolutionary Game Theory, we aim at
providing a new rationale for competitive outcomes that does not depend on the assumption that each agent is small
relative to the market.
As opposed to the neoclassical paradigm in Economics, Evolutionary Game Theory models are populated by
decision makers who do not necessarily understand the problem at hand and are boundedly rational. It provides a
dynamic analysis of problems of strategic interaction dispensing with the full rationality assumption and the
assumption that agents` beliefs are coordinated in equilibrium.
Recent contributions to the evolutionary literature suggest that competitive behavior has strong stability properties.
In particular, in the framework of a Cournot oligopoly, it has been shown that if firms imitate successful
competitors and occasionally experiment with new strategies, then the long-run outcome in the market would
correspond to the (competitive) Walrasian equilibrium, instead of the Cournot-Nash equilibrium.
The main objective of this project is to identify the structural characteristics of markets where we would expect
competitive outcomes to appear as a result of selective pressures and boundedly rational behavior.