On the complex dynamics of a bounded rational monopolist model

Purpose - The main purpose of this paper is to investigate the dynamic behavior of a bounded rational monopolist with a general nonlinear demand and quadratic cost functions reflecting diseconomies of scales. Design/methodology/approach - We suppose that locally the monopoly firm uses a gradient mechanism and looks at how the rate of growth of the quantity affects the variation of profits. Findings - We prove that the nonzero steady state is exactly the level of production that maximizes profits, as can be seen in the classic microeconomic theory. However, complex dynamics can arise. Research limitations/implications - For some values of a parameter there is a locally stable equilibrium which is the value that maximizes the profit function. Increasing these values, the equilibrium becomes unstable, through period-doubling bifurcation. Originality/value - The result indicates that a limited reaction of the monopolist to changes in profits can stabilize the quantity produced. On the other hand turbulences in the market are generated by an overreaction.