Competition, collusion, and chaos

Abstract In this paper, we present results which show that cartel formation can still be observed in a completely deterministic model where myopic firms compete through price in finite time. The firms are spatially differentiated and take turns with their neighboring firms in setting prices. Among the different possible dynamic scenarios, we focus attention on those where cooperative and competitive behavior continue to coexist throughout time. The continual interaction of cooperative and competitive behavior results in complex dynamic regimes. Because the set of prices which firms choose will be discrete, a formal equivalence is established between the model's dynamics and the theory of cellular automata.

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