Advanced Search
MyIDEAS: Login to save this article or follow this journal

The long-run benefits of chaos to oligopolistic firms

Contents:

Author Info

  • Huang, Weihong

Abstract

Conventional economic beliefs that 'equilibrium' is better than 'disequilibrium' and 'stability' is better than 'fluctuation' are challenged with a heterogeneous oligopolistic model that consists of a naive firm and a group of sophisticated firms. The naive firm is assumed to adopt a simple Cobweb strategy while the sophisticate firms, who command all market information, form a collusion and best respond the naive firm's current action. When the market equilibrium is unstable, the naive firm is able to turn an explosively diverging market into a bounded but chaotic one by adopting simultaneously a cautious adjustment strategy (that is, limiting the growth rate of output). There exists an upper-bound such that as long as the growth rate does not exceed this bound, the average profits made by all oligopolistic firms are higher than their respective equilibrium profits. Moreover, the average economic surplus can also be higher than the equilibrium surplus. In this sense, chaos is beneficial not only to all oligopolistic firms but also to the economy as a whole.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/B6V85-4P2S8X3-1/1/e4888695839ca8e87b67f03ff0efa935
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 32 (2008)
Issue (Month): 4 (April)
Pages: 1332-1355

as in new window
Handle: RePEc:eee:dyncon:v:32:y:2008:i:4:p:1332-1355

Contact details of provider:
Web page: http://www.elsevier.com/locate/jedc

Related research

Keywords:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. William A. Brock & Cars H. Hommes, 1997. "A Rational Route to Randomness," Econometrica, Econometric Society, vol. 65(5), pages 1059-1096, September.
  2. Conlisk, John, 1983. "Competitive Approximation of a Cournot Market," Review of Economic Studies, Wiley Blackwell, vol. 50(4), pages 597-607, October.
  3. Huang, Weihong & Zhang, Yang, 2007. "Distributional dynamics of cautious economic adjustment processes," Journal of Economic Behavior & Organization, Elsevier, vol. 62(3), pages 389-407, March.
  4. Huang, Weihong, 2005. "On the statistical dynamics of economics," Journal of Economic Behavior & Organization, Elsevier, vol. 56(4), pages 543-565, April.
  5. Maskin, Eric & Tirole, Jean, 1987. "A theory of dynamic oligopoly, III : Cournot competition," European Economic Review, Elsevier, vol. 31(4), pages 947-968, June.
  6. Day, Richard H, 1983. "The Emergence of Chaos from Classical Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 201-13, May.
  7. Schaffer, Mark E., 1989. "Are profit-maximisers the best survivors? : A Darwinian model of economic natural selection," Journal of Economic Behavior & Organization, Elsevier, vol. 12(1), pages 29-45, August.
  8. Droste, E. & Hommes, C.H. & Tuinstra, J., 1999. "Endogenous Fluctuations under Evolutionary Pressure in Cournot Competition," CeNDEF Working Papers 99-04, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  9. Huang, Weihong, 1995. "Caution implies profit," Journal of Economic Behavior & Organization, Elsevier, vol. 27(2), pages 257-277, July.
  10. Cars Hommes & Helena Nusse, 1991. "“Period three to period two” bifurcation for piecewise linear models," Journal of Economics, Springer, vol. 54(2), pages 157-169, June.
  11. Weddepohl, Claus, 1995. "A cautious price adjustment mechanism: Chaotic behavior," Journal of Economic Behavior & Organization, Elsevier, vol. 27(2), pages 293-300, July.
  12. Ruffin, R J, 1971. "Cournot Oligopoly and Competitive Behaviour," Review of Economic Studies, Wiley Blackwell, vol. 38(116), pages 493-502, October.
  13. Michael Kopel, 1997. "Improving the performance of an economic system: Controlling chaos," Journal of Evolutionary Economics, Springer, vol. 7(3), pages 269-289.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Luciano Fanti & Luca Gori, 2011. "The dynamics of a differentiated duopoly with quantity competition," Discussion Papers 2011/121, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  2. Huang, Weihong, 2011. "Price-taking behavior versus continuous dynamic optimizing," Journal of Economic Behavior & Organization, Elsevier, vol. 78(1), pages 37-50.
  3. Huang, Weihong, 2010. "On the complexity of strategy-switching dynamics," Journal of Economic Behavior & Organization, Elsevier, vol. 75(3), pages 445-460, September.
  4. HUANG Weihong, 2009. "Price-taking Strategy Versus Dynamic Programming in Oligopoly," Economic Growth centre Working Paper Series 0904, Nanyang Technolgical University, School of Humanities and Social Sciences, Economic Growth centre.
  5. HUANG Weihong, 2009. "Relative Profitability of Dynamic Walrasian Strategies," Economic Growth centre Working Paper Series 0903, Nanyang Technolgical University, School of Humanities and Social Sciences, Economic Growth centre.
  6. Angelini, Natascia & Dieci, Roberto & Nardini, Franco, 2009. "Bifurcation analysis of a dynamic duopoly model with heterogeneous costs and behavioural rules," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 79(10), pages 3179-3196.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:dyncon:v:32:y:2008:i:4:p:1332-1355. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.