Asymmetric Information without Common Priors: An IndirectEvolutionary Analysis of Quantity Competition

The common prior assumption justifies private beliefs as posterior probabilities when updatinga common prior based on individual information. Common priors are pervasive in most economicmodels of incomplete information and oligopoly models with asymmetrically informed firms. Wedispose of the common prior assumption for a homogeneous oligopoly market with uncertaincosts and firms entertaining arbitrary priors about other firms’ cost-type to analyze which priorswill be evolutionarily stable when truly expected profit measures (reproductive) success. Whenfirms believe that all other firms entertain the same beliefs Nature’s priors are not the onlyevolutionarily stable priors. In a second model allowing for asymmetric priors Nature’s priors arenot even evolutionarily stable.