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Cournot Competition and Endogenous Firm Size

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  • Francesco Saraceno
  • Jason Barr

Abstract

Barr and Saraceno (JEDC, forthcoming) model the firm as a type of artificial neural network (ANN) which plays a repeated Cournot game. Each period, the network/firm must estimate the relationship between environmental conditions and optimal output. Among other results, the paper develops the notion of a Network Size Equilibrium (NSE): which is an optimal network size for each of the players. The concept of NSE allows us to map environmental complexity to a type of industrial structure, i.e., the average network size in equilibrium. This paper builds on the previous work by exploring the dynamic adjustment process of networks. That is to say, we explore how the network (firm) evolves over time in reaction to the environmental complexity and the behavior of its rival. We model how firms endogenously "grow" over time in the adjustment process toward a network size equilibrium by exploring different adjustment algorithms, which may involve different costs. Further we explore the stability and the types of equilibria that can emerge, given different environmental scenarios.

Suggested Citation

  • Francesco Saraceno & Jason Barr, 2004. "Cournot Competition and Endogenous Firm Size," Computing in Economics and Finance 2004 129, Society for Computational Economics.
    • Handle: RePEc:sce:scecf4:129
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    1. Jan W. Rivkin & Nicolaj Siggelkow, 2003. "Balancing Search and Stability: Interdependencies Among Elements of Organizational Design," Management Science, INFORMS, vol. 49(3), pages 290-311, March.
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    3. Barr, Jason & Saraceno, Francesco, 2002. "A computational theory of the firm," Journal of Economic Behavior & Organization, Elsevier, vol. 49(3), pages 345-361, November.
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    More about this item

    Keywords

    Cournot Competition; Neural Networks; Adjustment Dynamics;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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