Nonlinear supply and demand model with two interrelated markets

Abstract

Our target in this paper is to observe how the presence of nonlinear terms in the supply and demand model changes the price behavior of the system. The dynamical analysis refers, mainly, to discrete dynamical systems. We start with a simple linear supply and demand model with two markets interacting with each other. The stability conditions for the linear model are presented. Afterwards we add nonlinear terms and try to observe, if the presence of nonlinearity in the supply and demand model with two interrelated markets exhibits chaotic price behavior. Chaos bursts in the system via period-doubling bifurcations, and all orbits converge to a strange attractor. © 2011 Kavala Institute of Technology.