Controlling Chaos Through Local Knowledge
AbstractWe propose an duopoly game where quantity-setting firms have incomplete information about the demand function. In each time step, they solve a profit maximization problem assuming a linear local approximation of the demand function. In particular, we construct an example using the well known duopoly Puu's model with isoelastic demand function and constant marginal costs. An explicit form of the dynamical system that describes the time evolution of the duopoly game with boundedly rational players is given. The main result is the global stability of the system.
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Bibliographic InfoPaper provided by University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini in its series Working Papers with number 0810.
Length: 21 pages
Date of creation: 2008
Date of revision: 2008
Cournot duopoly; incomplete information; isoelastic demand function; time evolution; boundedly rational players.;
Find related papers by JEL classification:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
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