Keeping up with the Joneses: competition and the evolution of collusion

An economy consists of many markets, each of which is a duopoly. Firms must earn normal-profits in the long-run if they have to survive. Normal-profit s are interpreted as the long-run limit of average profits in the whole eco nomy. We adopt an aspiration based model of firm behaviour, linking it to t he economy with the requirement that in the long-run, the profit aspiration must be at least as great as normal-profits. We assume that the joint-prof its can be maximized with symmetric payoffs, and with very few other assump tions are able to show that the (almost) global attractor is the cooperativ e outcome. (C) 2000 Elsevier Science B.V. All rights reserved.