Controlling the Cournot-Nash Chaos

A. Matsumoto
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A. Matsumoto: Chuo University

Journal of Optimization Theory and Applications, 2006, vol. 128, issue 2, No 9, 379-392

Abstract: Abstract The recently developing theory of nonlinear dynamics shows that any economic model can generate a complex dynamics involving chaos if the nonlinearities become strong enough. This study constructs a nonlinear Cournot duopoly model, reveals conditions for the occurrence of chaos, and then considers how to control chaos. The main purpose of this paper is to demonstrate that chaos generated in Cournot competition is in a double bind from the long-run perspective: a firm with a lower marginal production cost prefers a stable (i.e., controlled) market to a chaotic (i.e., uncontrolled) market, while a firm with a higher marginal cost prefers the chaotic market.

Keywords: Linear control; Cournot equilibrium; long-run average profit; chaotic dynamics; unimodal reaction function (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (9)

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DOI: 10.1007/s10957-006-9021-z

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