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Interacting cobweb markets

Authors
Journal
Journal of Economic Behavior & Organization
0167-2681
Publisher
Elsevier
Publication Date
Volume
75
Issue
3
Identifiers
DOI: 10.1016/j.jebo.2010.05.004
Keywords
  • Price Fluctuations
  • Market Interactions
  • Risk Aversion
  • Nonlinear Dynamics
  • Bifurcation Analysis
Disciplines
  • Economics

Abstract

Abstract We enrich the classical cobweb framework by allowing producers to enter different markets. The market entry decision is repeated every period and depends on the markets’ historical profit differentials. As a result, the number of producers in a market and thus also a market’s total supply vary over time. Analytical and numerical investigations of our four-dimensional nonlinear model indicate that interacting cobweb markets may contribute to the strong cyclical price motion observed in many commodity markets. We furthermore find that endogenous dynamics may either set in via a Flip or a Neimark-Sacker bifurcation. Interestingly, the latter scenario is prevalent if producers are sufficiently risk averse.

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