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On the complex dynamics of a bounded rational monopolist model

Author

Listed:
  • Georges Sarafopoulos

    (Department of Economics, Democritus University of Thrace, Komotini)

Abstract

Purpose – The main purpose of this paper is to investigate the dynamic behavior of a bounded rational monopolist with a general nonlinear demand and quadratic cost functions reflecting diseconomies of scales. Design/methodology/approach – We suppose that locally the monopoly firm uses a gradient mechanism and looks at how the rate of growth of the quantity affects the variation of profits. Findings – We prove that the nonzero steady state is exactly the level of production that maximizes profits, as can be seen in the classic microeconomic theory. However, complex dynamics can arise. Research limitations/implications – For some values of a parameter there is a locally stable equilibrium which is the value that maximizes the profit function. Increasing these values, the equilibrium becomes unstable, through period - doubling bifurcation. Originality/value – The result indicates that a limited reaction of the monopolist to changes in profits can stabilize the quantity produced. On the other hand turbulences in the market are generated by an overreaction.

Suggested Citation

  • Georges Sarafopoulos, 2015. "On the complex dynamics of a bounded rational monopolist model," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Democritus University of Thrace (DUTH), Kavala Campus, Greece, vol. 8(1), pages 113-120, August.
    • Handle: RePEc:tei:journl:v:8:y:2015:i:1:p:113-120
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    References listed on IDEAS

    as
    1. Agiza, H.N. & Elsadany, A.A., 2003. "Nonlinear dynamics in the Cournot duopoly game with heterogeneous players," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 320(C), pages 512-524.
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    4. Askar, S.S., 2013. "On complex dynamics of monopoly market," Economic Modelling, Elsevier, vol. 31(C), pages 586-589.
    5. Bischi, Gian Italo & Naimzada, Ahmad K. & Sbragia, Lucia, 2007. "Oligopoly games with Local Monopolistic Approximation," Journal of Economic Behavior & Organization, Elsevier, vol. 62(3), pages 371-388, March.
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    More about this item

    Keywords

    Monopoly; Difference Equation; Equilibrium; Stability; Chaotic Behavior;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly

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