Production delays, supply distortions and endogenous price dynamics

Roberto Dieci, Sarah Mignot, Noemi Schmitt and Frank Westerhoff

No 182, BERG Working Paper Series from Bamberg University, Bamberg Economic Research Group

Abstract: It takes time to produce commodities, and different production technologies may take different lengths of time. Suppose that firms may switch between different production technologies that take different lengths of time. A natural implication of such a scenario is that not all firms would then offer their commodities in every period, i.e. firms' total supply schedule would become a time-varying quantity. Based on a behavioral cobweb framework, we analytically demonstrate that commodity markets become unstable when firms switch too rapidly between production technologies that take different lengths of time. In particular, we observe that supply distortions lead to endogenous commodity price dynamics due to a mismatch between supply and demand.

Keywords: Cobweb models; production delays; endogenous price dynamics; bounded rationality and learning; nonlinear maps; stability and bifurcation analysis (search for similar items in EconPapers)
JEL-codes: D24 E32 Q11 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bamber:182

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