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Controlling Chaos Through Local Knowledge

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Author Info

  • Ahmad Naimzada

    ()
    (Department of Quantitative Methods, University Bicocca, Milan, Italy)

  • Fabio Tramontana

    ()
    (Università Politecnica delle Marche & Dipartimento di Economia e Metodi Quantitativi, Università di Urbino)

Abstract

We 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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File URL: http://www.econ.uniurb.it/RePEc/urb/wpaper/WP_08_10.pdf
File Function: First version, 2008
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Bibliographic Info

Paper 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.

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Length: 21 pages
Date of creation: 2008
Date of revision: 2008
Handle: RePEc:urb:wpaper:08_10

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Web page: http://www.econ.uniurb.it/
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Related research

Keywords: Cournot duopoly; incomplete information; isoelastic demand function; time evolution; boundedly rational players.;

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