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A characterisation of duopoly dynamics with frictions in production adjustments

Luca Gori (), Luca Guerrini () and Mauro Sodini ()
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Luca Guerrini: Polytechnic University of Marche
Mauro Sodini: University of Pisa

Journal of Evolutionary Economics, 2017, vol. 27, issue 5, 963-988

Abstract: Abstract This article revisits the classical work of Puu (Chaos Soliton Fract 1(6):573–581, 1991) on duopoly dynamics by gathering two distinct aspects of the functioning of markets: production of goods requires time and is subject to some gestation lags, but trading takes place continuously. Dynamics are characterized by a two-dimensional system of delay differential equations. The main aim of this work is to show that regular and non-regular fluctuations may emerge endogenously because of the existence of heterogeneous interacting agents that choose production over time in a myopic way. Chaotic dynamics in the discrete-time model of Puu (Chaos Soliton Fract 1(6):573–581, 1991) appear to be close enough to the origin of axes (implying that quantities produced by both firms are close to zero). In contrast, in our continuous-time version of the model with discrete delays, the dynamic system is more suitable of generating complex dynamics far enough from the origin when marginal costs vary. This is because of the role played by time delays and inertia. From a mathematical point of view, we show the existence of Hopf bifurcations and detect how time delays and inertia affect the stability of the system by using the recent techniques of stability crossing curves introduced by Gu et al. (J Math Anal Appl 311(1):231–253, 2005) and generalized by Lin and Wang (Can Appl Math Quart 20(4):519–533, 2012). The article also provides some findings about global bifurcations and chaotic dynamics by combining analytical studies and simulation exercises.

Keywords: Chaos; Cournot duopoly; Stability crossing curves; Time delays (search for similar items in EconPapers)
JEL-codes: C61 C62 D43 L13 (search for similar items in EconPapers)
Date: 2017
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