Event Detail

Event Type: 
Probability Seminar
Thursday, February 19, 2015 - 12:00 to 13:00
WNGR 201

Speaker Info

Seoul Institute, Seoul, Korea

In this talk we consider a stochastic version of a dynamic Cournot model. The model is dynamic because firms are slow to adjust output in response to changes in their economic environment. The model is stochastic because management may make errors in identifying the best course of action in a dynamic setting. We capture these behavioral errors with Brownian motion. The model demonstrates that the limiting output level of the game is a random variable, rather than a constant that is found in the non-stochastic case. In addition, the limiting variance in firm output is smaller with more firms. Finally, the model predicts that firm failure is more likely in smaller markets and for firms that are smaller and less efficient at managing errors. This talk is based on joint work with Victor J. Tremblay that was published in Theoretical Economics Letters.