Profitability Analysis of Price-Taking Strategy in Disequilibrium
Conventional economic assumption that more sophistication in decision making is better than less is challenged with a profitability analysis conducted with an oligopolistic model consisting of a naive firm and a group of sophisticated firms. While the naive firm is assumed to adopt a simple Cobweb s...
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| Main Author: | |
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| Format: | Article |
| Language: | English |
| Published: |
Wiley
2007-01-01
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| Series: | Discrete Dynamics in Nature and Society |
| Online Access: | http://dx.doi.org/10.1155/2007/12029 |
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| Summary: | Conventional economic assumption that more sophistication in decision making
is better than less is challenged with a profitability analysis conducted with
an oligopolistic model consisting of a naive firm and a group of sophisticated
firms. While the naive firm is assumed to adopt a simple Cobweb strategy by
equating its marginal cost of current production to the last period's price,
the sophisticated firms can take either individually or collusively any
conventional sophisticated strategy such as Cournot and Stackelberg
strategies. Contrary to the economic intuition, it is not the sophisticated firms but the
naive firm who triumphs in equilibrium as well as during the dynamical transitionary
periods, no matter what strategies the sophisticated firms may take. Moreover, when the economy turns cyclic or chaotic, a combination of the Cobweb strategy with a cautious adjustment
strategy could also bring relative higher average profits for the naive firm
than its rivals. |
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| ISSN: | 1026-0226 1607-887X |