Affiliation:
1. Department of Quantitative Economics and CeNDEF, University of Amsterdam, The Netherlands
Abstract
We consider a price adjustment process in a model of monopolistic competition. Firms have incomplete information about the demand structure. When they set a price they observe the amount they can sell at that price and they observe the slope of the true demand curve at that price. With this information they estimate a linear demand curve. Given this estimate of the demand curve they set a new optimal price. We investigate the dynamical properties of this learning process. We find that, if the cross-price effects and the curvature of the demand curve are small, prices converge to the Bertrand-Nash equilibrium. The global dynamics of this adjustment process are analyzed by numerical simulations. By means of computational techniques and by applying results from homoclinic bifurcation theory we provide evidence for the existence of strange attractors.
Publisher
World Scientific Pub Co Pte Lt
Subject
Statistics, Probability and Uncertainty,Business and International Management,General Computer Science
Cited by
53 articles.
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