Interacting cobweb markets

Roberto Dieci (1) , Frank Westerhoff (2)

1 Department of Mathematics for Economics and Social Sciences
2 Department of Economics

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.

Mots clés: C62; E32; Q11; price fluctuations; market interactions; risk aversion; nonlinear dynamics; bifurcation analysis

Domaines: Économie et finance quantitative [q-fin]

Roberto Dieci, Frank Westerhoff. Interacting cobweb markets. Journal of Economic Behavior and Organization, 2010, 75 (3), pp.461. ⟨10.1016/j.jebo.2010.05.004⟩. ⟨hal-00849411⟩