Dynamic Effects Arise Due to Consumers’ Preferences Depending on Past Choices

Abstract

We analyzed a dynamic duopoly game where players adopt specific preferences. These preferences are derived from Cobb–Douglas utility function with the assumption that they depend on past choices. For this paper, we investigated two possible cases for the suggested game. The first case considers only focusing on the action done by one player. This action reduces the game’s map to a one-dimensional map, which is the logistic map. Using analytical and numerical simulation, the stability of fixed points of this map is studied. In the second case, we focus on the actions applied by both players. The fixed points, in this case, are calculated, and their stability is discussed. The conditions of stability are provided in terms of the game’s parameters. Numerical simulation is carried out to give local and global investigations of the chaotic behavior of the game’s map. In addition, we use a statistical measure, such as entropy, to get more evidences on the regularity and predictability of time series associated with this case.