Evolutionary oligopoly games with cooperative and aggressive behaviors

Abstract

We propose an oligopoly model where players can choose between two kinds of behaviors, denoted as cooperative and aggressive, respectively. Each cooperative agent chooses the quantity to produce in order to maximize her own profit as well as the profits of other agents (at least partially), whereas an aggressive player decides the quantity to produce by maximizing his own profit while damaging (at least partially) competitors’ profits. At each discrete time, players face a binary choice to select the kind of behavior to adopt, according to a proportional imitation rule, expressed by a replicator equation based on a comparison between accumulated profits. This means that the behavioral decisions are driven by an evolutionary process where fitness is measured in terms of current profits as well as a weighted sum of past gains. The model proposed is expressed by a nonlinear two-dimensional iterated map, whose asymptotic behavior describes the long-run population distribution of cooperative and aggressive agents. We show under which conditions one of the following long-run behaviors prevails: (i) all players choose the same strategy; (ii) both behaviors coexist according to a mixed stationary equilibrium; and (iii) a self-sustained (i.e. endogenous) oscillatory (periodic or chaotic) time pattern occurs. The influence of memory and that of the levels of cooperative/aggressive attitudes on the dynamics are analyzed as well.