TY - JOUR
T1 - Is limit pricing evolutionarily stable?
AU - Soytas, Ugur
AU - Becker, Klaus G.
PY - 2003/8
Y1 - 2003/8
N2 - 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.
AB - 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.
KW - ESS
KW - Limit pricing
KW - Replicator dynamics
UR - http://www.scopus.com/inward/record.url?scp=0041975050&partnerID=8YFLogxK
U2 - 10.1007/s00191-003-0154-z
DO - 10.1007/s00191-003-0154-z
M3 - Review article
AN - SCOPUS:0041975050
SN - 0936-9937
VL - 13
SP - 281
EP - 288
JO - Journal of Evolutionary Economics
JF - Journal of Evolutionary Economics
IS - 3
ER -