Quantity Competition under Asymmetric Information withoutCommon Priors: An Indirect Evolutionary Approach

The common prior assumption asserts that the beliefs of agents in different states of theworld are their posteriors based on a common prior and possibly some private signal. Commonpriors are pervasive in most economic models of incomplete information, oligopoly models withasymmetrically informed firms being no exception. We dispose of the common prior assumptionin a Cournot oligopoly with uncertain costs and allow firms to entertain arbitrary priors aboutthe other firms' cost-types. Only Nature is aware of the true probability distribution of thecosts and determines via the true distribution which priors will be evolutionarily stable. Tocheck whether the evolutionarily stable priors satisfy the commonness requirement we presenttwo alternative models. In the first model, firms believe that all other firms entertain thesame beliefs about the distribution of marginal costs and Nature's priors are not the onlyevolutionarily stable priors. In a second model with the possibility of asymmetric priorsNature's priors are not evolutionarily stable.