Imitators and Optimizers in Symmetric n-Firm

I present a formal model of symmetric n-firm Cournot oligopoly. Instead of assuming a homogeneous population of profit maximizing firms, the set of firms is divided into two subpopulations of imitators and optimizers respectively. Imitators mimic the output decision of the most successful firms of the previous round. Optimizers are my-opic best response players to the previous opponents ’ output. The dynamics of the decision rules induce a Markov chain. As expres-sion of bounded rationality, firms are allowed to make mistakes and deviate from the decision rules with a small probability. Applying stochastic stability analysis I characterize the long run behavior of the oligopoly. It is known that under certain stability conditions a homogeneous population of optimizers converges to a Cournot Nash equilibrium. Vega-Redondo (1997) showed that a homogeneous popu-lation of imitators converges to the competitive solution. I find that a heterogeneous population converges to a recurrent set of states where imitators are better off than optimizers. This outcome is reminiscent of Stackelberg behavior where imitators take here the role of ”inde-pendent ” firms and optimizers are ”dependent”