Complex dynamics and multistability with increasing rationality in market games

Fausto Cavalli and Ahmad Naimzada

Chaos, Solitons & Fractals, 2016, vol. 93, issue C, 151-161

Abstract: In this work we study oligopoly models in which firms adopt decision mechanisms based on best response techniques with different rationality degrees. Firms are also assumed to face resource or financial constraints in adjusting their production levels, so that, from time to time, they can only increase or decrease their strategy by a bounded quantity. We consider different families of oligopolies of generic sizes, characterized by heterogeneous compositions with respect to the rationality degrees of firms. We analytically study the local stability of the equilibrium depending on the oligopoly size and composition and through numerical simulations we investigate the possible dynamics arising when trajectories do not converge toward the equilibrium. We show that in this case complex dynamics can arise, and this is due to both the loss of stability of the equilibrium and to the emergence of multiple attractors, with the stable steady state coexisting with a different, periodic or chaotic, attractor. In particular, we show that multistability phenomena occur when the overall degree of rationality of the oligopoly is increased. Finally, we investigate the effect of non-convergent dynamics on the realized profits.

Keywords: Market games; Bounded rationality; Best response mechanisms; Bifurcation; Chaos; Multistability (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:chsofr:v:93:y:2016:i:c:p:151-161

DOI: 10.1016/j.chaos.2016.10.014

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