 Heterogeneity and the (de)stabilizing role of rationalityFausto Cavalli, Ahmad Naimzada and Marina Pireddu Chaos, Solitons & Fractals, 2015, vol. 79, issue C, 226-244 Abstract: In this paper we study oligopolies of generic size consisting of heterogeneous firms, which adopt best response adjustment mechanisms with either perfect foresight (rational firms) or static expectations (naive firms). Assuming an isoelastic demand function and possibly different marginal costs for the two groups of firms, we focus on the local stability of the Nash equilibrium. We show that, with respect to the oligopoly composition, described in terms of the fraction of rational firms, different scenarios are possible. We find that a high rationality degree may not always guarantee stability, in particular when rational firms have sufficiently larger marginal costs. In fact, in this situation, increasing the fraction of rational firms can even introduce instability. Besides the usual scenarios in which replacing some naive firms with rational ones leads to a stabilization of (or at least keeps unchanged) the dynamics, we provide a family of situations, characterized by costs ratio favorable to naive firms, in which equilibrium loses its stability when naive firms are replaced by rational ones. The results we present are both analytical and simulative. Date: 2015 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:chsofr:v:79:y:2015:i:c:p:226-244 DOI: 10.1016/j.chaos.2015.05.017 Access Statistics for this article Chaos, Solitons & Fractals is currently edited by Stefano Boccaletti and Stelios Bekiros More articles in Chaos, Solitons & Fractals from Elsevier |
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