Caution implies profit

Can Endogenous Participation Explain Price Volatility? Evidence from an Agent-Based Cobweb Model

“…Second, cost parameters also affect both prices and profits, in a way that depends nontrivially on the prevailing borrowing constraint. Similarly to Huang (1995) we observe a positive correlation between price variability and firms' mean profits. The profits however are not evenly distributed among the producers: on average, firms with a smaller value for the adaptive adjustment speed make more profits.…”

“…This is a consequence of the reduced scale of the firms under higher cost structure, coupled with the fact that, with larger borrowing possibilities profits become, on average, negative. A discussion of this type appears in Huang (1995), where a higher δ (which governs local stability) associates with higher mean profits. In the present context there is no way to do such comparative statics analysis, given that no steady state exists any more and that both number and types of active firms affect price variability.…”

“…An earlier cobweb model in which firms have limited capacity of varying output at will as a result e.g. of financial constraints can be found in Huang (1995).…”

Statistical Dynamics in Piecewise Linear Cournot Game With Heterogeneous Duopolists

“…In particular, Boyarsky and Scarowsky [1979] present a simple way to construct a closedform expression for a stepwise density if a map is piecewise linear, continuous and Markov. 6 Here, fα ,β (u) is Markov if it has either a periodic point or an eventually-fixed point. 7 According to their theorem, the following procedure is appropriate for constructing a density function which fα ,β (u) permits.…”

“…Yet, Day and Pianigiani [1991] turn their attention to the statistical behavior that frequencies of trajectories can converge to a stable density function which characterize chaotic economic dynamics from the long-run point of view. Inspired by their results, Huang [1995] raises a provocative question of whether a complex (i.e., chaotic) dynamics is preferable to simple (i.e., stable) dynamics and provides an affirmative answer that perpetual fluctuations generated by a cautious cobweb model may be preferable to a stationary equilibrium. On the other hand, Kopel [1997] constructs a simple model of evolutionary dynamics and shows a negative result that various performance measures such as aggregate profits, aggregate sales revenues and mean sales indicate the inferiority of chaotic dynamics to equilibrium on the average.…”