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R E S E A R C H

Open Access

On the structure and the qualitative behavior

of an economic model

Hamdy A El-Metwally

*

*Correspondence:

helmetwally2001@yahoo.com Department of Mathematics, Rabigh College of Science and Arts, King Abdulaziz University, P.O. Box 344, Rabigh, 21911, Saudi Arabia Permanent address: Department of Mathematics, Faculty of Science, Mansoura University, Mansoura, 35516, Egypt

Abstract

In this paper, we build an economic model of a non-linear system of difference equations and present a qualitative study for the obtained model, where a mathematical model of a bounded rationality multiple game with an exponential demand function will be introduced, and then we obtain the equilibrium points of the model and classify if they are locally stable or not. Also, we investigate the boundedness and global convergence of solutions for the obtained system. Keywords: difference equations; economic model; boundedness; global stability

1 Introduction

In the recent years, the study of the bounded rationality duopoly game has attracted a very high attention. In  Bischi and Naimzada [] introduced the bounded rationality duopoly game as a modification of the original model work of Cournot [], where they proposed the duopoly game which describes a market with two players producing homo-geneous goods, updating their production strategies in order to maximize their profits. Each player thinks with bounded rationality, adjusts his output according to the expected marginal profit, therefore the decision of each player depends on local information about his output. Also, they have studied the bounded rationality duopoly game with a simple case when the demand function and the cost function are linear []. Recently, many works of bounded rationality duopoly game have been studied [, –]. Agizaet al.[] studied the complex dynamics in a bounded rationality duopoly game with a nonlinear demand function and a linear cost function. The asymptotic behavior of the economic model was investigated by El-Metwally [].

The main aim for this paper is to analyze the dynamics of a nonlinear discrete-time map generated by a bounded rationality duopoly game with an exponential demand function. In Section  we present and describe a bounded rationality duopoly game with an expo-nential demand function. The existence of the equilibrium points of the obtained model and the studying of their local stability are given in Section . The boundedness of the so-lutions is studied in Section . Finally, Section  is concerned with the global attractivity of the solutions for the obtained system.

Now consider the following first-order system of difference equations:

xn+=f(xn,yn), yn+=g(xn,yn),

n= , , , . . . , (∗)

wheref andgare continuous functions on a subsetSR.

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Definition System (∗) is competitive iff(x;y) is non-decreasing inxand non-increasing iny, andg(x;y) is non-increasing inxand non-decreasing iny. If bothf andgare non-decreasing in xandy, System (∗) iscooperative.Competitiveandcooperativemaps are defined similarly.Strongly competitivesystems of difference equations orstrongly compet-itivemaps are those for which the functionsfandgare coordinate-wise strictly monotone.

Theorem A[] Let T= (f,g)be a monotone map on a closed and bounded rectangular region SR.Suppose that T has a unique fixed point E= (x,y)in S.Then E is a global

attractor of T on S.

2 The model

We consider a Cournot duopoly game withqidenoting the quantity supplied by firmi=

, . In addition, letP(qi+qj),i=j, denote a twice differentiable and non-increasing inverse

demand function and letCi(qi) denote the twice differentiable increasing cost function.

For the firmi, the profit resulting from the above Cournot game is given by

i=P(qi+qj)qiCi(qi). ()

Since the information in the oligopoly market is incomplete, the bounded rational players have no complete knowledge of the market, hence they make their output decisions on a local estimate of the expected marginal profit ∂i

∂qi []. If the marginal profit is positive

(negative), it increases (decreases) its productionqiat the next period output. Therefore

the dynamical equation of the bounded rationality playerihas the form

qi(t+ ) =qi(t) +νiqi(t)

∂i

∂qi(t)

, i= , , ()

whereνiis a positive parameter which represents the relative speed of adjustment. Bischi

and Naimazada studied the dynamical behavior of the bounded duopoly game with a linear demand function [].

To make the bounded rationality duopoly game more realistic, we assume that the de-mand functionf(Q) has the exponential form (see [])

f(Q) =aeQ=ae–(q+q), ()

whereais a parameter of maximum price in the market. The exponential demand function has the good properties of non-zero or non-negative prices and finite prices when the total quantity in the marketQtends to zero. So, we think that the exponential demand function is a good alternative to the linear demand function and makes the game more realistic. Also, we consider the cost function is linear and is given by

ci(qi) =ciqi, i= , , ()

whereciis the marginal cost of theith firm. Thus the profit of theith firm is given by

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Then marginal profit ofith firm is

∂i

∂qi(t)

=a( –qi)e–(q+q)–ci, i= , . ()

Thus the repeated duopoly game of bounded rationality by using Eq. () is given by

qi(t+ ) =qi(t) +νiqi

a( –qi)e–(q+q)–ci

. ()

Therefore the discrete two-dimensional map of the game has the form

T:

q(t+ ) =q(t) +νq(a( –q)e–(q+q)–c),

q(t+ ) =q(t) +νq(a( –q)e–(q+q)–c).

()

Now we can rewrite this system in the following form:

xn+= ( –α)xn+β( –xn)xne–(xn+yn), yn+= ( –α)yn+β( –yn)yne–(xn+yn),

()

wherexn=q(t),yn=q(t),αi=νici∈(,∞), andβi=νia∈(,∞),i= , .

3 Local stability of the equilibrium points

In this section, we examine the existence of non-negative equilibrium points of System () and then give a powerful criterion for the asymptotic stability of the obtained points.

Proposition  ()Whenα≥βandα≥β,System()has a unique equilibrium point

E= (, ).

() Whenα <βandα<β,System() has two equilibrium points E= (x∗, )and

E= (,y∗),where xand ysatisfyα=β( –x∗)ex

andα=β( –y∗)ey

,respectively.

()Whenα<βe

αβ

αβ–,System()has a unique positive equilibrium point E= (u∗,v∗), where usatisfiesα=ρ( –u∗)eγu

,v∗=αβαβu

αβ

αβ + ,γ=  + αβ

αβandρ=βe γ–.

Proof Observe that the equilibrium points of System () are given by the relations

x= ( –α)x+βx( –x)e–(x+y) and y= ( –α)y+βy( –y)e–(x+y).

Therefore

x= , α=β( –x)e–(x+y), y=  and α=β( –y)e–(x+y). ()

First, setg(z) =α–β( –z)ez. Then

g() =α–β, lim

z→∞g(z) =α and g(z) =β( –z)e

z.

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() Ifα≥β, theng(z)≥for allz> and sog(z)has no positive roots. Similarly, it is Therefore System () has the unique positive equilibrium point (u∗,v∗) whereu∗satisfies α=ρ( –u∗)eσu∗andv∗=ααββu∗–ααββ+ .

Recall thatE,EandEare called boundary equilibrium points of System () andEis called a Nash equilibrium point of System (). See [].

In the following, we deal with the local stability of the equilibrium points of System (). Now rewrite System () as follows:

Proposition  The equilibrium point Eof System()is locally asymptotically stable if βi<αi<  +βifor i= , and it is unstable elsewhere.

Proof The Jacobian matrix of System () about the equilibrium pointE(, ) has the form

J(E) =

Therefore the eigenvalues ofJ(E) are given by

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It is well known that the equilibrium pointEof System () is locally asymptotically stable if both|λ|<  and|λ|<  are satisfied ifβ<α<  +βandβ<α<  +β. The proof is

completed.

Proposition  The equilibrium points Eand Eof System()are saddle points.

Proof The Jacobian matrix of System () about the equilibrium pointE(x∗, ) has the form

J(E) =

Thus it follows that the equilibrium pointE(x∗, ) of System () is a saddle point. Similarly, one can easily prove that the equilibrium point E(,y∗) of System () is also a saddle

point.

Proposition  The Nash equilibrium point Eof System()is asymptotically stable if  <αu–∗(–uu∗)+αv

By some simple computations, we obtain that

TrJ(E)

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4 Boundedness and invariant

In this section we concern ourselves with the boundedness character of the solutions for System (). Under appropriate conditions, we give some bounded results related to Sys-tem ().

Theorem  Assume thatαi+eβi < ,i= , .Then every solution{(xn,yn)}∞n=of System(),

with x> and y> ,satisfies that xn> and yn> for all n> .

Proof LetHi(x,y),i= , , be continuous functions defined by

Hi(x,y) =  –αi+βi( –x)e–(x+y), i= , .

Then System () can be rewritten in the form

xn+=xnH(xn,yn),

yn+=ynH(xn,yn).

Now assume that{(xn,yn)}∞n=is a solution of System () with positive initial values. Then it suffices to show thatHi(x,y),i= , , are positive for allx> ,y> . Observe that

∂Hi(x,y)

∂x =βi(x– )e

–(x+y) and ∂Hi(x,y)

∂y = –βi( –x)e

–(x+y), i= , .

ThereforeH andHhave no positive critical points. Letaandbbe arbitrary positive numbers and consider the domain

D=(x,y) : ≤xa, ≤yb.

Then fori= , , we see that

Hi(,y) =  –αi+βiey, ≤yb,

Hi(x, ) =  –αi+βi( –x)ex, ≤xa,

Hi(x,b) =  –αi+βi( –x)e–(x+b), ≤xa,

Hi(a,y) =  –αi+βi( –a)e–(a+y), ≤yb.

Using elementary differential calculus, we obtain that the absolute minimum of each one of the above functions is  –αieβi. ThereforeHi(x,y)≥ –αiβei >  for all (x,y)∈D.

Sinceaandbare arbitrary positive numbers, we can conclude thatHi(x,y) >  fori= , 

and for all (x,y)∈(,∞).

Theorem  Let{(xn,yn)}∞n=be a solution of System()with(xn,yn)∈ (, ] for some n≥and assume,for i= , ,that one of the following statements is true:

(i) βie( –αi).

(ii) e( –αi) <βie.

(iii) (√βi– )≤αi.

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Proof Letn≥ be such thatxn∈(, ]. It follows from System () that

xn+≤( –α)xn+β( –xn)xnexn, ()

xn+≤( –α)xn+β( –xn)e–=

 –α– β

e

xn+

β

e ()

and

xn+≤( –α)xn+β( –xn)xn. ()

Setw(x) = ( –α)x+β( –x)xexforx≤. Then it follows from () thatxn+≤w(xn).

Also, we obtain that

w(x) = ( –α) +β

x– x+ ex

and

w (x) =β

x+ x– ex= –β(x– )(x– )ex

≤ for allx∈(, ].

Thenw(x)≥w() =  –α–βe. If (i) holds, thenw()≥ and hencew(x) is increasing on (, ]. Thereforexn+≤w() < . If (ii) holds, then () yieldsxn+≤βe< .

Now suppose that (iii) holds. In this case, it follows from () that xn+ ≤p(xn),

wherep(x) = ( –α)x+βx( –x) for allx∈(, ]. It is not difficult to see thatp(x∗) is the absolute maximum ofp(x) on (, ] wherex∗= –αβ+β. According to (iii) and since

p(x∗) =(–α+β)

β ≤,xn+≤p(x∗)≤. That is, in all cases we obtain that wheneverxn≤

yieldsxn+≤. So it is easy to prove by induction thatxn∈(, ] for alln≥. The proof

ofynis similar and so will be omitted. This completes the proof.

Theorem  For every solution{(xn,yn)}∞n=of System(),the following statements hold: (i) xnxn( –α)nn+eβα( – ( –α)

nn),nn

≥. (ii) ynyn( –α)nn+eβα( – ( –α)

nn),nn

≥.

Proof We obtain, forn≥, from System () that

xn+≤( –α)xn+βxnexn

≤( –α)xn+

β

e for allnn.

Then it follows by Theorem  and Theorem  that Case (i) is true. The proof of Case (ii)

is similar and will be omitted.

The following corollaries are coming immediately from Theorem .

Corollary  Assume that{(xn,yn)}n∞=is a positive solution of System()with(xn,yn)∈

(, βαe]×(,

β

αe]for some n≥.Then(xn,yn)∈(, βαe]×(,

β

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Corollary  Every positive solution{(xn,yn)}∞n=of System()is bounded.Moreover,

lim sup

n→∞ xn

βαe

and

lim sup

n→∞ yn

βαe

.

Theorem  Assume that{(xn,yn)}∞n=is a positive solution of System()and assume,for

i= , ,that one of the following conditions is true: (i) βi<αie.

(ii)  +νi+ eνi– ν

iνieνi> , –αi+βieνi[ –νi(eνi+ ) +νieνi]and

( –α)νi+βiνieνiβνie–νi< ,whereνi=αβiie.

Then there exists n≥such that(xn,yn)∈(, ]for all nn.

Proof The proof of the theorem, when (i) holds, follows by Corollary . Now consider that (ii) is true. Then it follows from Corollary  that for every constantε> , there exists

n≥ such thatxnαβe +ε=γ,nn. Setδ=eγ. Sinceδ→eνwhenε→ and the inequalities in (ii) hold, depending on the continuity inνof the left-hand side of each inequality in (ii), one can chooseεso small that

 +γ+ –γδ

– γ≥, ()

 –α+βδ

 – (δ+ )γ+δγ

≥ ()

and

( –α)γ+βγδ–βγδ ≤. ()

Now we obtain from System () that

xn+= ( –α)xn+βxne–(xn+yn)–βxne–(xn+yn)

≤( –α)xn+βxnexnβδxnexn

=K(xn), nn,

whereK(x) = ( –α)x+βex(xδx),xγand then

K(x) =  –α+βex

δx– (δ+ )x+ 

and

K (x) = –βex

δx– (δ+ )x+ (δ+ )

.

On the other hand, the equation

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has the positive roots

Similarly, one can easily prove thatyn∈(, ]. This completes the proof.

Theorem  Assume that{(xn,yn)}∞n=is a positive solution of System().If either

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Therefore we have either

xn+≤K(xn)≤

( –α+β) βδ

≤, nn

or

xn+≤K(xn)≤

β δ

+β( –α)≤, nn,

which is our desired conclusion forxn. Similarly, one can accomplish the same conclusion

foryn. So, the proof is complete.

5 Global stability analysis

In this section we are interested in driving conditions under which the equilibrium points of System () are attractors of the solutions for System ().

In the following theorem, we investigate the global attractivity of the equilibrium point (, ) of System ().

Theorem  Assume thatαiβi,i= , .Then(, )is a global attractor of all positive solutions of System().

Proof Let{(xn,yn)}∞n=be a solution of System (). It follows from System () that

xn+= ( –α)xn+βxn( –xn)e–(xn+yn)< ( –α+β)xn<xn

and

yn+= ( –α)yn+βyn( –yn)e–(xn+yn)< ( –α+β)yn<yn.

Then there existx≥ andy≥such thatlimn→∞xn=xandlimn→∞yn=y. Since the only

possible values of (x,y) in the present case are (, ),limn→∞xn=  andlimn→∞yn= .

This completes the proof.

In the following theorems, we investigate the global attractivity of the positive equi-librium point (x;y) of System (), wherexandyare given byα=β( –x)e–(x+y) and α=β( –y)e–(x+y), respectively.

Theorem  Assume thatαiie–< ,i= , .Then the unique positive equilibrium point

(x;y)of System()is a global attractor of all positive solutions of System().

Proof Let{(xn,yn)}n∞=be a solution of System () and letxnx(the case wheneverxnx

is similar and it will be left to the reader). Sincexnx, thenh(xn)≤, whereh(xn) =

α–β( –xn)e–(xn+yn). Thusα≤β( –xn)e–(xn+yn). Therefore we obtain from System ()

that

xn+ = ( –α)xn+βxn( –xn)e–(xn+yn)

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Then the sequence{xn}n=is increasing and since it was shown that it is bounded above, then it converges to the unique positive equilibrium pointx. Similarly, assume thatyny

(the case wheneverynyis similar and it will be left to the reader). Sinceyny, then g(yn)≤, whereg(yn) =α–β( –yn)e–(xn+yn). Thusα≤β( –yn)e–(xn+yn). Therefore we

obtain from System () that

yn+ = ( –α)yn+βyn( –yn)e–(xn+yn)

≥( –α)yn+αyn=yn.

Then, again, the sequence{yn}n=is increasing, and since it was shown that it is bounded above, then it converges to the unique positive equilibrium pointy. Thus{(xn,yn)}∞n=

con-verges to (x;y).

Theorem  Considerα=α=α andβ=β=β and assume thatβ(αeβ)≥αe.

Then the unique positive equilibrium point(x;y)of System()is a global attractor of all positive solutions of System().

Proof Let{(xn,yn)}∞n=be a solution of System (). It follows from System () that

xn+ = ( –α)xn+βxn( –xn)e–(xn+yn)

≥( –α)xn+βxn( –xn)e–.

Thus we see from Corollary  that

xn+≥

 –α+β

 – β αe

e–

xnxn.

Then the sequence{xn}n=is increasing and since it is bounded, then it converges to the unique positive equilibrium pointx. Similarly, it is easy to show that the sequence{yn}n=

is also convergent to the unique positive equilibrium pointy=x: Therefore{(xn,yn)}∞n= converges to (x,y) and then the proof is complete.

Theorem  Considerα=α=α andβ=β=β and assume that one of the following

conditions holds: (I) β≤e( –α). (II) α+β< .

Then the unique positive equilibrium point(x,x)of System()is a global attractor of all positive solutions of System().

Proof Rewrite System () as follows:

xn+=F(xn,yn) = ( –α)xn+β( –xn)xne–(xn+yn), yn+=G(xn,yn) = ( –α)yn+β( –yn)yne–(xn+yn),

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whereF(x,y) = ( –α)x+β( –x)xe–(x+y)andG(x,y) = ( –α)y+β( –y)ye–(x+y)are contin-uous functions. Now consider the system

m=F(m,M), M=F(M,m),

m=G(M,m), M=F(m,M).

Then

m= ( –α)m+βm( –m)e–(m+M),

M= ( –α)M+βM( –M)e–(M+m),

m= ( –α)m+βm( –m)e–(m+M),

M= ( –α)M+βM( –M)e–(M+m).

Thus eitherm=M=m=Mor

α=β( –m)e–(m+M),

α=β( –M)e–(M+m),

α=β( –m)e–(m+M),

α=β( –M)e–(M+m).

Thenm=M,m=Mand ( –m)e–m= ( –M)e–M= ( –m)e–m= ( –M)e–M. Now since ( –m)e–m= ( –M)e–M, thene(Mm)=––Mm, that is,

(M–m) =log( –M) –log( –m). ()

We claim thatM=m; otherwise, for the sake of contradiction, assume thatM>m(the case whereM≤mis similar and it will be left to the reader). Thenlog( –M) –log( –

m) > ⇒log( –M) >log( –m)⇒M<m, which is a contradiction. Now it is easy to see that

∂F(x,y)

∂x =  –α+β(x– x+ )e–(x+y), ∂F(x,y)

∂y = –( –x)e

–(x+y),

∂G(x,y)

∂x = –βy( –y)e

–(x+y),

∂G(x,y)

∂y =  –α+β(y– y+ )e–(x+y). ⎫ ⎪ ⎪ ⎪ ⎪ ⎬ ⎪ ⎪ ⎪ ⎪ ⎭

Thus

∂F(x,y)

∂x =  –α+β

x– x+ e–(x+y)

≥ –α+βx– x+ e–

=βe–x– βe–x+βe–+  –α.

(13)

Case : Suppose that β≤e( –α). Therefore the functionw(x) =βe–x– βe–x+ βe–+  –αhas no real roots. Thus∂F(x,y)

∂x ≥. Similarly, it is easy to prove that ∂G(x,y)

∂x ≥.

Then it follows by Theorem A that the equilibrium point (x,y) = (x,x) of System () is a global attractor of all positive solutions of System ().

Case : Suppose thatα+ β< . Since ≤x≤, ≥ –xx( –x) = xx, or xx– , and sinceα+ β< , then  –α> β> βe–βe–(x+y)β(xx– )e–(x+y). Thus ∂F(xx,y) ≥. Similarly, it is easy to prove that ∂G(xx,y) ≥. Then it follows again by Theorem A that the equilibrium point (x,y) = (x,x) of System () is a global attractor of all positive solutions of System (). Thus the proof is now completed.

Competing interests

The author declares that they have no competing interests.

Acknowledgements

This paper was funded by the Deanship of Scientific Research (DSR), King Abdulaziz University, Jeddah, Saudi Arabia under grant No. (662-009-D1433). The author, therefore, acknowledge with thanks DSR technical and financial support. Last, but not least, sincere appreciations are dedicated to all our colleagues in the Faculty of Science, Rabigh branch for their nice wishes.

Received: 5 January 2013 Accepted: 23 May 2013 Published: 17 June 2013

References

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doi:10.1186/1687-1847-2013-169

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