Reputation by imitation: an evolutionary chain-store game with strategic matching

This paper shows how strategic matching generates reputation-building behavior in an evolutionary chain-store game. Strategic matching means the possibility for an entrant to choose in a strategic way the local market into which it will move. Players are boundedly rational and follow behavioral rules simply requiring that the frequency of any strategy enjoying the highest payoff should never decrease. The model shows how strategic matching, in preventing the random entries in markets of fighting monopolists, reinforces the reputation effects. Under some conditions, the Nash equilibrium with reputation effects emerges as the long-run equilibrium of the evolutionary chain-store game. Using the bounded rationality set-up offered by evolutionary game theory, the paper follows Selten (1978)'s intuition underlying the necessity of a limited rationality approach in order to capture reputation effects.