Monopolistic Competition and Bounded Rationality

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    8 Citations (Scopus)


    This paper shows how a marker reaches a unique steady state in monopolistic competition. Without knowing anything about strategic interdependence and only perceiving a linear demand for its own product, every firm follows a simple price strategy to maximize its current profit in each period, The strategy is based on a firm's own cost function, slope estimate, and its sales and price in the previous period, We show that a market with asymmetric and non-linear demand converges to a unique steady state under rather general conditions. (C) 2001 Elsevier Science B.V. All rights reserved.

    Original languageEnglish
    Pages (from-to)175-184
    Number of pages10
    JournalJournal of Economic Behavior and Organization
    Issue number2
    Publication statusPublished - Jun 2001


    • price adjustment
    • steady state


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