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doi:10.1016/S0167-2681(02)00154-3 
Copyright © 2002 Published by Elsevier Science B.V.
A naive but optimal route to Walrasian behavior in oligopolies
Weihong Huang
Received 8 August 2001;
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Abstract
A paradoxical phenomenon where irrationality or ignorance lead to higher profits is shown to prevail in an oligopolistic market where three firms produce a homogeneous product with identical technologies. Under the conventional assumption on the convexity of cost function, the profit made by a naive price-taker will always be higher than or at least as much as the other two rivals, no matter what kind of strategies the latter may take and whether they form a coalition or not. By sticking to the price-taking strategy, a firm always gains a positive profit improvement, should any one of its rivals try to upgrade from price-taker to the Cournotor. With these incentives, a firm prefers to remain as a naive price-taker.
Author Keywords: Competitive behavior; Price-taking; Duopoly; Oligopoly; Cournot; Cobweb
JEL classification codes: D14; L13; C73
