Oligopoly game: Price makers meet price takers

© 2018 Elsevier B.V. The paper studies an oligopoly game, where firms can choose between price-taking and price-making strategies. On a mixed market price takers are always better off than price makers, though the profits of both types decline in the number of price takers. We investigate and confront two possibilities of firms’ decisions about their types: forward-looking equilibrium reasoning and backward-looking individual learning. We find that the Cournot outcome is the only equilibrium prediction and it is learnable if firms are sufficiently sensitive to profit differences. However, with a larger number of firms, a unilateral deviation from Cournot behavior becomes profitable. Under learning this incentive creates a space for permanent oscillations over different markets with a positive but low number of price takers

Efficiency of Continuous Double Auctions under Individual Evolutionary Learning with Full or Limited Information

In this paper we explore how specific aspects of market transparency and agents' behavior affect the efficiency of the market outcome. In particular, we are interested whether learning behavior with and without information about actions of other participants improves market efficiency. We consider a simple market for a homogeneous good populated by buyers and sellers. The valuations of the buyers and the costs of the sellers are given exogenously. Agents are involved in consecutive trading sessions, which are organized as a continuous double auction with electronic book. Using Individual Evolutionary Learning agents submit price bids and offers, trying to learn the most profitable strategy by looking at their realized and counterfactual or "foregone" payoffs. We find that learning outcomes heavily depend on information treatments. Under full information about actions of others, agents' orders tend to be similar, while under limited information agents tend to submit their valuations/costs. This behavioral outcome results in higher price volatility for the latter treatment. We also find that learning improves allocative efficiency when compared with to outcomes with Zero-Intelligent traders.

Interest Rate Rules with Heterogeneous Expectations

Recent macroeconomic literature stressed the importance of expectations heterogeneity in the formulation of monetary policy. We use a stylized macro model of Howitt (1992) to investigate the dynamical consequences of alternative interest rate rules when agents have heterogeneous expectations and update their beliefs over time along the lines of Brock and Hommes (1997). We find that the outcome of different monetary policies in terms of stability crucially depends on the ecology of forecasting rules and on the intensity of choice among different predictors. We also show that, when agents have heterogeneous expectations, an interest rate rule that obeys the Taylor principle does not always lead the system to converge to the rational expectations equilibrium but multiple equilibria may persist.

Thermal and electrical conductivity of iron at Earth's core conditions

The Earth acts as a gigantic heat engine driven by decay of radiogenic isotopes and slow cooling, which gives rise to plate tectonics, volcanoes, and mountain building. Another key product is the geomagnetic field, generated in the liquid iron core by a dynamo running on heat released by cooling and freezing to grow the solid inner core, and on chemical convection due to light elements expelled from the liquid on freezing. The power supplied to the geodynamo, measured by the heat-flux across the core-mantle boundary (CMB), places constraints on Earth's evolution. Estimates of CMB heat-flux depend on properties of iron mixtures under the extreme pressure and temperature conditions in the core, most critically on the thermal and electrical conductivities. These quantities remain poorly known because of inherent difficulties in experimentation and theory. Here we use density functional theory to compute these conductivities in liquid iron mixtures at core conditions from first principles- the first directly computed values that do not rely on estimates based on extrapolations. The mixtures of Fe, O, S, and Si are taken from earlier work and fit the seismologically-determined core density and inner-core boundary density jump. We find both conductivities to be 2-3 times higher than estimates in current use. The changes are so large that core thermal histories and power requirements must be reassessed. New estimates of adiabatic heat-flux give 15-16 TW at the CMB, higher than present estimates of CMB heat-flux based on mantle convection; the top of the core must be thermally stratified and any convection in the upper core driven by chemical convection against the adverse thermal buoyancy or lateral variations in CMB heat flow. Power for the geodynamo is greatly restricted and future models of mantle evolution must incorporate a high CMB heat-flux and explain recent formation of the inner core.Comment: 11 pages including supplementary information, two figures. Scheduled to appear in Nature, April 201