Andrea Gaunersdorfer

Endogenous fluctuations in a simple asset pricing model with heterogeneous agents

Abstract In this paper we study the adaptive rational equilibrium dynamics in a simple asset pricing model introduced by Brock and Hommes (System Dynamics in Economic and Financial Models, Wiley, Chichester, 1997, pp. 3–44; Journal of Economic Dynamics and Control, 22, 1998, 1235–1274). Traders have heterogeneous expectations concerning future prices and update their beliefs according to a risk adjusted performance measure and to market conditions. Further, also their expectations about conditional variances of returns vary over time. We show that even for the simple case where agents can only choose between two different predictors complicated dynamics arise and we analyse the bifurcation routes to chaos.

Time averages for heteroclinic attractors

In neighbourhoods of attracting heteroclinic cycles, the time averages fail to converge for almost all initial conditions, but spiral closer and closer to the boundary of a polygon. This is shown by using a Poincare-section argument.

On the dynamics of asymmetric games

A game dynamical analysis of a simple asymmetric game (two roles with two alternatives each) shows that an interesting class of “semi-stable” heteroclinic cycles leading to a highly unpredictable behaviour can occur in a robust way. Biological examples related to conflicts over ownership and parental investment are analysed.

On the profitability of horizontal mergers in industries with dynamic competition

Abstract The consequences of horizontal mergers on firms’ profits are traditionally studied within a static Cournot framework. In such a setting, the merger is modeled as an exogenous change in market structure. One of the key results in this literature is that if firms compete in a homogeneous product market, mergers will in general be unprofitable to the merging firms. In this paper, we analyze horizontal mergers of firms that compete in a dynamic Cournot market. We find unlike in static Cournot models that mergers are always profitable independent of the number of merging firms. While firms have an incentive to merge, welfare in the economy, however, does not increase since the gain in producer surplus does not offset the loss in consumer surplus due to increased prices.

Strategic new product pricing when demand obeys saturation effects

Abstract We analyze dynamic pricing strategies for new products over an infinite planning horizon in a duopolistic market. The sales dynamic is modelled as a linear demand function with saturation effects, marginal costs are assumed to be constant. The optimal pricing strategies are obtained as (degenerate) closed-loop Nash solutions. It is shown that the optimal dynamic prices are greater than the static ones. In the case of no discounting there is in addition to the constant solution also an equilibrium with monotonically increasing prices.

EVOLUTIONARY AND DYNAMIC STABILITY IN SYMMETRIC EVOLUTIONARY GAMES WITH TWO INDEPENDENT DECISIONS

A two-decision competition model is developed where players may choose different strategies at different decisions knowing that their payoff at one decision is not affected by their performance at the other. It is shown that both static solution concepts of Nash and evolutionarily stable equilibria for the two-decision model are directly related to those of the separate decisions. Furthermore, if there are at most two pure strategies at each decision, dynamic stability can also be characterised through a separate analysis of each decision. However, when there are more than two strategies, this last statement is not always true.

Adaptive Erwartungsbildung und Finanzmarktdynamik

SummaryBased on a classical financial market model we discuss three model variants, each focusing on a different approach in the formation of (heterogeneous) beliefs about future asset prices: the concept of Consistent Expectations, the concept of Adaptive Belief Systems, and artificial financial markets, where beliefs (or expectations) are formed by Classifier Systems. We analyze the consequences of these different mechanisms of expectations formation on the equilibrium dynamics of asset prices and compare statistical properties of returns generated by these models with the characteristics of real world time series.

Government Price Subsidies to Promote Fast Diffusion of a New Consumer Durable

We consider a market in which a single supplier sells a new product characterized by diffusion effects on the demand side. In this setting we analyze the problem whether or not the government should subsidize the diffusion of this innovation. We assume that the government is a Stackelberg leader and decides about the subsidy (price or cost subsidy) before the supplier sets his optimal price. The objective of the government is to choose a subsidy policy such that the number of adopters at the horizon date is maximized. The firm chooses a pricing strategy so as to maximize the present value of profits.

The Strategic Role of Dividends and Debt in Markets with Imperfect Competition

In a seminal paper Brander and Lewis (Am Econ Rev 76:956–970, 1986) show that oligopolistic firms with limited liability follow a more aggressive output strategy as their leverage increases. In a follow-up paper Glazer (J Econ Theory 62:428–443, 1994) points out that when debt is long term and rival firms choose their equilibrium quantities in two consecutive periods, they have an incentive to be more collusive in the first period than static oligopolists would be. In this paper we argue that the incentive to collude is driven by limited liability and the dividend policy of the firm. We find that increasing leverage causes firms in both periods to increase their output and hence to be more aggressive. Additionally, we find that it is always optimal to pay out profits immediately. Moreover, we show that the symmetric game admits multiple equilibria some of which cause firms to choose asymmetric product market strategies.

Dynamic investment strategies with demand-side and cost-side risks

Abstract Investments in cost reductions are critical for the long run success of companies that operate in dynamic and stochastic market environments. This paper studies optimal investment in cost reductions as a real option under the assumption that a single firm faces two different sources of risk, stochastic demand and input prices. We derive optimal investment strategies for a monopoly as well as a firm in a perfectly competitive market and show that in case of high marginal costs, cost reductions take place earlier in competitive than in monopoly markets. While the existence of an option to invest in cost reductions increases firm value it also increases a firm’s systematic risk. Risk can be smaller in a monopolistic than in a competitive industry.