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Interacting Cobweb Demands

Author

Listed:
  • Lorenzo Pinna

    (Università degli Studi di Siena)

  • Giorgio Ricchiuti

    (Università degli Studi di Firenze
    Università Cattolica del Sacro Cuore)

Abstract

This paper proposes a simple, stylized two-good, two-market dynamical cobweb model. Consumers and producers are located in two countries, where they can choose to consume either locally produced or imported goods. We introduce a heuristic rule for consumers, which considers a convex combination of purchasing the cheapest good and the expected intrinsic quality of the two goods. Numerical simulations demonstrate that the interconnection between markets is a primary driver of instability, manifesting through either a flip or a Hopf bifurcation. Additionally, the dynamics depend closely on the price-quality trade-off. We identify three scenarios: when only price matters, a stable period-2 cycle arises; when only quality matters, the system converges; and in intermediate cases, complex dynamics emerge. Notably, we discovered a boundary crisis region, where there is a sudden shift from a chaotic attractor to stability. Finally, as a brief extension, we analyze the system when tariffs are considered for policy purposes.

Suggested Citation

  • Lorenzo Pinna & Giorgio Ricchiuti, 2025. "Interacting Cobweb Demands," Computational Economics, Springer;Society for Computational Economics, vol. 65(2), pages 1015-1050, February.
    • Handle: RePEc:kap:compec:v:65:y:2025:i:2:d:10.1007_s10614-024-10788-x
    DOI: 10.1007/s10614-024-10788-x
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