When the firm prevents the crash: Avoiding market collapse with partial control

Asaf Levi, Juan Sabuco and Miguel A. F. Sanjuán

PLOS ONE, 2017, vol. 12, issue 8, 1-16

Abstract: Market collapse is one of the most dramatic events in economics. Such a catastrophic event can emerge from the nonlinear interactions between the economic agents at the micro level of the economy. Transient chaos might be a good description of how a collapsing market behaves. In this work, we apply a new control method, the partial control method, with the goal of avoiding this disastrous event. Contrary to common control methods that try to influence the system from the outside, here the market is controlled from the bottom up by one of the most basic components of the market—the firm. This is the first time that the partial control method is applied on a strictly economical system in which we also introduce external disturbances. We show how the firm is capable of controlling the system avoiding the collapse by only adjusting the selling price of the product or the quantity of production in accordance to the market circumstances. Additionally, we demonstrate how a firm with a large market share is capable of influencing the demand achieving price stability across the retail and wholesale markets. Furthermore, we prove that the control applied in both cases is much smaller than the external disturbances.

Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:plo:pone00:0181925

DOI: 10.1371/journal.pone.0181925

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