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Instantaneous Information Always Stabilizes?

Author

Listed:
  • YANG ZHANG

    (Faculty of Business Administration, University of Macau, AV. Padre Tomás Pereira, Taipa, Macau, China)

  • WEIHONG HUANG

    (School of Humanities and Social Sciences, Nanyang Technological University, HSS-04-61, Nanyang Avenue, Singapore-639798, Singapore)

Abstract

The impact of information improvement on local stability is examined for continuous dynamics. It is conventionally believed that removal of uncertainty always brings additional stability to an existing equilibrium. This paper shows that the relation between information and equilibrium stability may not be monotonic. Removal of information lag may sometimes destabilize the otherwise stable continuous model. Economic applications to Cournot and Bertrand competition are examined where the role of improved information on stability is shown to be cost-structure specific. Elimination of lags may cause stability loss. The conclusion drawn on two-dimensional continuous dynamics is briefly generalized to multidimensional system.

Suggested Citation

  • Yang Zhang & Weihong Huang, 2011. "Instantaneous Information Always Stabilizes?," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 56(02), pages 239-253.
    • Handle: RePEc:wsi:serxxx:v:56:y:2011:i:02:n:s0217590811004195
    DOI: 10.1142/S0217590811004195
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    Keywords

    Information lag; dynamic stability; oligopoly; delayed-differential systems; continuous dynamics; D21; C61; C73; L13;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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