Abstract
This paper explores the implication of aspiration-based learning in a simple Cournot duopoly model. When the firms know the average industry-wide profit and perceive it as aspiration level, then the market leads to collusive outcome or collusive equilibrium. In this sense, all firms have the same reference point, i.e., the average industry-wide profit as their aspiration level. However, the firms may have their own aspiration level (e.g., a goal of profit) and will choose their strategy accordingly. Therefore, the firms will try to reach their own aspiration level. This aspiration level is not static and the firms will adjust their aspiration level. In this research we consider a market that consists of several firms with their own aspiration level. We propose an aspiration-based learning shaped by an information searching mechanism to examine the behavior of the firms in the market. A firm updates its aspiration level by searching the information of the other firms’ aspiration level and then compares this information with its current aspiration level. Based on its aspiration level, the firm will choose the best strategy through learning. Simulation results show that the learning model and the information searching mechanism lead the market to competitive outcome, i.e., Nash equilibrium, if the firms have many strategies even if their initial aspiration level is low. However, if the firms have fewer strategies and start with high initial aspiration level, then collusive behavior will occur.
Similar content being viewed by others
References
Altavilla, C., L. Luini and P. Sbriglia (2006) “Social Learning in Market Games,” Journal of Economic Behavior & Organization 61.4: 632–652.
Bendor, J., D. Diermeier and M. Ting (2004) The Empirical Content of Behavioral Models of Adaptation, Mimeo. Graduate School of Business Stanford University.
Bush, R. and F. Mosteller (1955) Stochastic Models of Learning, John Wiley and Sons, New York.
Dixon, H. (2000) “Keeping Up with the Joneses: Competition and the Evolution of Collusion,” Journal of Economic Behavior & Organization 43.2: 223–238.
Dixon, H., P. Sbriglia and E. Somma (2006) “Learning to Collude: An Experiment in Convergence and Equilibrium Selection in Oligopoly,” Research in Economics 60.3: 155–167.
Festinger, L. (1954) “A Theory of Social Comparison Processes,” Human Relations 7.2: 117–140.
Holt, C. A. (1985) “An Experimental Test of the Consistent-Conjectures Hypothesis,” The American Economic Review 75.3: 314–325.
Huck, S., H. Normann and J. Oechssler (1999) “Learning in Cournot Oligopoly An Experiment,” The Economic Journal 109.454: C80–C95.
Kimbrough, S. and M. Lu (2003) A Note on Q-Learning in the Cournot Game, Proceedings of the Second Workshop on E-Business.
Lupi, P. and P. Sbriglia (2003) “Exploring Human Behavior and Learning in Experimental Cournot Settings,” Rivista Internazionale di Scienze Sociali 111: 373–395.
Oechssler, J. (2002) “Cooperation as a Result of Learning with Aspiration Levels,” Journal of Economic Behavior & Organization 49.3: 405–409.
Palomino, F. and F. Vega-Redondo (1999) “Convergence of Aspirations and (Partial) Cooperation in the Prisoners Dilemma,” International Journal of Game Theory 28.4: 465–488.
Thorndike, E. L. (1911) Animal Intelligence: Experimental Studies, MacMillan, New York.
Vega-Redondo, F. (1997) “The Evolution of Walrasian Behaviour,” Econometrica 65.2: 375–384.
Xiao, L. and S. Boyd (2004) “Fast Linear Iterations for Distributed Averaging,” Systems & Control Letters 53.1: 65–78.
Author information
Authors and Affiliations
Corresponding author
About this article
Cite this article
Siallagan, M., Deguchi, H. & Ichikawa, M. Aspiration-Based Learning in a Cournot Duopoly Model. Evolut Inst Econ Rev 10, 295–314 (2013). https://doi.org/10.14441/eier.A2013015
Published:
Issue Date:
DOI: https://doi.org/10.14441/eier.A2013015