Commodity cycles, a function of market complexity? Extending the cobweb experiment

Santiago Arango and Erling Moxnes

Journal of Economic Behavior & Organization, 2012, vol. 84, issue 1, 321-334

Abstract: We examine market behavior in a series of cobweb-like experiments. As in previous studies we find no cyclicality in the simple supply lag design with five players. Step by step we add investment lags and capacity vintages, and thus external validity to the basic design. As complexity increases, prices become autocorrelated with cyclical tendencies. Regressions and simulations suggest that players put too little weight on capacity vintages when making investment decisions. Different from the original cobweb design, adaptive price expectations do not suffice to eliminate fluctuations. Thus, our experiment indicates that the basic cobweb design is not well suited to test endogenous theories of cyclicality in commodity markets.

Keywords: Commodity cycles; Cournot markets; Cobweb markets; Bounded rationality; Complexity; Experimental economics (search for similar items in EconPapers)
JEL-codes: C9 D01 D03 D43 D84 L10 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:84:y:2012:i:1:p:321-334

DOI: 10.1016/j.jebo.2012.04.002

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