Oligopoly with Price Inertia and Bounded Rationality
This paper is an exploratory piece aimed toward developing useful approaches to bounded rationality and also toward a more realistic modeling of consumer demand in oligopoly. Regarding the bounded rationality side of the model, anyone familiar with economics knows that the bulk of the theory supposes well informed economic agents who have well defined preferences and who make decisions that are optimal for them in an environment in which neither resources nor time are needed to carry out calculations. Additionally, much, though not all, theory abstracts from uncertainty of every sort. This body of theory is impressive, beautiful, and full of insight into human economic behavior. It provides valuable early steps on a very long path. At the same time, it does great and obvious violence to reality.
KeywordsMarginal Cost Price Change Repeated Game Regime Switch Bounded Rationality
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