Non-Quasi-Competitiveness and Stability in Cournot's Model

This paper retakes previous work of the authors, about the relationship between non-quasi-competitiveness (the increase in price caused by an increase in the number of oligopolists) and stability of the equilibrium in the classical Cournot oligopoly model. Though it has been widely accepted in the literature that the loss of quasi-competitiveness is linked, in the long run as new firms entered the market, to instability of the model, the authors in their previous work put forward a model in which a situation of monopoly changed to duopoly losing quasi-competitiveness but maintaining the stability of the equilibrium. That model could not, at the time, be extended to any number of oligopolists. The present paper exhibits such an extension. An oligopoly model is shown in which the loss of quasi-competitiveness resists the presence in the market of as many firms as one wishes and where the successive Cournot's equilibrium points are unique and asymptotically stable. In this way, for the first time, the conjecture that non-quasi- competitiveness and instability were equivalent in the long run, is proved false.

Price increase and stability with new entries in Cournot markets

It is widely accepted in the literature about the classicalCournot oligopoly model that the loss of quasi competitiveness is linked,in the long run as new firms enter the market, to instability of the equilibrium. In this paper, though, we present a model in which a stableunique symmetric equilibrium is reached for any number of oligopolistsas industry price increases with each new entry. Consequently, the suspicion that non quasi competitiveness implies, in the long run, instabilityis proved false.

A non-quasi-competitive Cournot oligopoly with stability

This paper presents a classical Cournot oligopoly model with some peculiar features: it is non--quasi--competitive as price under N-poly is greater than monopoly price; Cournot equilibrium exists and is unique with each new entry; the successive equilibria after new entries are stable under the adjustment mechanism that assumes that actual output of each seller is adjusted proportionally to the difference between actual output and profit maximizing output. Moreover, the model tends to perfect competition as N goes to infinity, reaching the monopoly price again.

Bayesian nash equilibrium in ''linear'' cournot models with private information about costs

Calculating explicit closed form solutions of Cournot models where firms have private information about their costs is, in general, very cumbersome. Most authors consider therefore linear demands and constant marginal costs. However, within this framework, the nonnegativity constraint on prices (and quantities) has been ignored or not properly dealt with and the correct calculation of all Bayesian Nash equilibria is more complicated than expected. Moreover, multiple symmetric and interior Bayesianf equilibria may exist for an open set of parameters. The reason for this is that linear demand is not really linear, since there is a kink at zero price: the general ''linear'' inverse demand function is P (Q) = max{a - bQ, 0} rather than P (Q) = a - bQ.

Secret information acquisition in Cournot markets

Two-stage game models of information acquisition in stochastic oligopoliesrequire the unrealistic assumption that firms observe the precision ofinformation chosen by their competitors before determining quantities. Thispaper analyzes secret information acquisition as a one-stage game. Relativeto the two-stage game firms are shown to acquire less information. Policyimplications based on the two-stage game yield, therefore, too high taxes ortoo low subsidies for research activities. For the case of heterogeneousduopoly it is shown that comparative statics results partly depend on theobservability assumption.

The structural approach of a natrex model on equilibrium exchange rates

Following a general macroeconomic approach, this paper sets a closed micro-founded structural model to determine the long run real exchange rate of a developed economy. In particular, the analysis follows the structure of a Natrex model. The main contribution of this research paper is the development of a solid theoretical framework that analyse in depth the basis of the real exchange rate and the details of the equilibrium dynamics after any shock influencing the steady state. In our case, the intertemporal factors derived from the stock-flow relationship will be particularly determinant. The main results of the paper can be summarised as follows. In first place, a complete well-integrated structural model for long-run real exchange rate determination is developed from first principles. Moreover, within the concrete dynamics of the model, it is found that some convergence restrictions will be necessary. On one hand, for the medium run convergence the sensitivity of the trade balance to changes in real exchange rate should be higher that the correspondent one to the investment decisions. On the other hand, and regarding long-run convergence, it is also necessary both that there exists a negative relationship between investment and capital stock accumulation and that the global saving of the economy depends positively on net foreign debt accumulation. In addition, there are also interesting conclusions about the effects that certain shocks over the exogenous variables of the model have on real exchange rates.

Does bounded rationality lead to individual heterogeneity? The impact of the experimentation process and of memory constraints

In this paper we explore the effect of bounded rationality on the convergence of individual behavior toward equilibrium. In the context of a Cournot game with a unique and symmetric Nash equilibrium, firms are modeled as adaptive economic agents through a genetic algorithm. Computational experiments show that (1) there is remarkable heterogeneity across identical but boundedly rational agents; (2) such individual heterogeneity is not simply a consequence of the random elements contained in the genetic algorithm; (3) the more rational agents are in terms of memory abilities and pre-play evaluation of strategies, the less heterogeneous they are in their actions. At the limit case of full rationality, the outcome converges to the standard result of uniform individual behavior.

The effect of candidate quality on electoral equilibrium: an experimental study

When two candidates of different quality compete in a one dimensional policy space, the equilibrium outcomes are asymmetric and do not correspond to the median. There are three main effects. First, the better candidate adopts more centrist policies than the worse candidate. Second, the equilibrium is statistical, in the sense that it predicts a probability distribution of outcomes rather than a single degenerate outcome. Third, the equilibrium varies systematically with the level of uncertainty about the location of the median voter. We test these three predictions using laboratory experiments, and find strong support for all three. We also observe some biases and show that they canbe explained by quantal response equilibrium.

Sequential formation of coalitions through bilateral agreements

We study a sequential protocol of endogenous coalition formation based on a process of bilateral agreements among the players. We apply the game to a Cournot environment with linear demand and constant average costs. We show that the final outcome of any Subgame Perfect Equilibrium of the game is the grand coalition, provided the initial number of firms is high enough and they are sufficiently patient.

General equilibrium with asymmetric information: a dual approach

We study markets where the characteristics or decisions of certain agents are relevant but not known to their trading partners. Assuming exclusive transactions, the environment is described as a continuum economy with indivisible commodities. We characterize incentive efficient allocations as solutions to linear programming problems and appeal to duality theory to demonstrate the generic existence of external effects in these markets. Because under certain conditions such effects may generate non-convexities, randomization emerges as a theoretic possibility. In characterizing market equilibria we show that, consistently with the personalized nature of transactions, prices are generally non-linear in the underlying consumption. On the other hand, external effects may have critical implications for market efficiency. With adverse selection, in fact, cross-subsidization across agents with different private information may be necessary for optimality, and so, the market need not even achieve an incentive efficient allocation. In contrast, for the case of a single commodity, we find that when informational asymmetries arise after the trading period (e.g. moral hazard; ex post hidden types) external effects are fully internalized at a market equilibrium.

Consumption externalities, habit formation, and equilibrium efficiency

We analyze the welfare properties of the competitive equilibrium in a capital accumulation model where individual preferences are subjected to both habit formation and consumption spillovers. We also discuss how consumption externalities and habits interact to generate an inefficient dynamic equilibrium. Finally, we characterize optimal tax policies aimed to restore efficient decentralized paths.

Real equilibrium exchange rates. A panel data approach for advanced and emerging economies.

Based on an behavioral equilibrium exchange rate model, this paper examines the determinants of the real effective exchange rate and evaluates the degree of misalignment of a group of currencies since 1980. Within a panel cointegration setting, we estimate the relationship between exchange rate and a set of economic fundamentals, such as traded-nontraded productivity differentials and the stock of foreign assets. Having ascertained the variables are integrated and cointegrated, the long-run equilibrium value of the fundamentals are estimated and used to derive equilibrium exchange rates and misalignments. Although there is statistical homogeneity, some structural differences were found to exist between advanced and emerging economies.

Equilibrium play and best response to (Stated) beliefs in constant sum games

We report experimental results on one-shot two person 3x3 constant sum games played by non-economists without previous experience in the laboratory. Although strategically our games are very similar to previous experiments in which game theory predictions fail dramatically, 80% of actions taken in our experiment coincided with the prediction of the unique Nash equilibrium in pure strategies and 73% of actions were best responses to elicited beliefs. We argue how social preferences, presentation effects and belief elicitation procedures may influence how subjects play in simple but non trivial games and explain the diferences we observe with respect to previous work.

A Computable general equilibrium approach to hypothetical extractions and missing links

Identifying key sectors or key locations in an interconnected economy is of paramount importance for improving policy planning and directing economic strategy. Hence the relevance of categorizing them and hence the corresponding need of evaluating their potential synergies in terms of their global economic thrust. We explain in this paper that standard measures based on gross outputs do not and cannot capture the relevant impact due to self- imposed modeling limitations. In fact, common gross output measures will be systematically downward biased. We argue that an economy wide Computable General Equilibrium (CGE) approach provides a modeling platform that overcomes these limitations since it provides (i) a more comprehensive measure of linkages and (ii) an alternate way of accounting for links' relevance that is in consonance with standard macromagnitudes in the National Income and Product Accounts.