Abstract
We analyze the dynamic behaviour of firms that locally interact through price competition in a social environment in an evolutionary game-theoretic model. These firms update their prices according to the behavioural rule ‘Win Cooperate, Lose Defect’ (WCLD), which is often observed in experimental economics. It can be regarded as a generalized Tit-for-Tat strategy. The model can explain the simultaneous emergence of collusive behaviour, price dispersion and occasional local price wars. Price wars only last for a short period of time after which the firms start to collude again.
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Tieman, A.F., van der Laan, G. & Houba, H. Bertrand Price Competition in a Social Environment. De Economist 149, 13–31 (2001). https://doi.org/10.1023/A:1004103630727
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DOI: https://doi.org/10.1023/A:1004103630727