Influence of rationality levels on dynamics of heterogeneous Cournot duopolists with quadratic costs

Abstract

This paper is intended to investigate the dynamics of heterogeneous Cournot duopoly games, where the first player adopts identical gradient adjustment mechanisms but the second player is endowed with distinct rationality levels. Based on tools of symbolic computations, we introduce a new approach and use it to establish rigorous conditions of the local stability for these models. We analytically investigate the bifurcations and prove that the period-doubling bifurcation is the only possible bifurcation that may occur for all the considered models. The most important finding of our study is regarding the influence of players' rational levels on the stability of heterogeneous duopolistic competition. It is derived that the stability region of the model where the second firm is rational is the smallest, while that of the one where the second firm is boundedly rational is the largest. This fact is counterintuitive and contrasts with relative conclusions in the existing literature. Furthermore, we also provide numerical simulations to demonstrate the emergence of dynamics such as periodic solutions with different orders and strange attractors.

Keywords

• Rationality level
• Heterogeneous duopoly
• Isoelastic demand
• Quadratic cost
• Symbolic computation