Cobweb Theory, Market Stability, and Price Expectations

Poitras, Geoffrey

doi:10.1017/s1053837222000116

Cited by 3 publications

(1 citation statement)

References 76 publications

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“…The cobweb model is often used to analyse dynamic price fluctuations in the market from the perspective of elasticity of supply and demand (Hommes 2022;Poitras 2022), especially for the agricultural market. According to the different expectations and production strategies of producers, the cobweb model can be classified into the following types: traditional, simple expectation, adaptive expectation, and rational expectation.…”

Section: Methodsmentioning

confidence: 99%

How does price insurance alleviate the fluctuation of agricultural product market? A dynamic analysis based on cobweb model

Fu¹,

Shen²,

Huang³

2023

Agric. Econ. - Czech

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Food security is of great importance to all countries. Correspondingly, agricultural price insurance is an important tool to maintain food security. This study adopts the traditional spider web model to establish a mathematical framework for exploring the internal mechanism of agricultural price insurance, which can ease the volatility of the agricultural market. Then, the influence of agricultural price insurance on the supply of agricultural products is examined. The findings show that the supply elasticity of most agricultural products is greater than the demand elasticity, with agricultural product markets presenting a natural divergence. Agricultural price insurance changes the supply curve of agricultural products by reducing their supply elasticity, subsequently positively affecting the reduction of price fluctuation and the stabilisation of outputs. Agricultural price insurance can even change agricultural product markets under certain conditions, allowing a shift from divergence to convergence. Moreover, by adjusting the insurance parameters of agricultural prices, the equilibrium yield and price can be changed, and the planting area and income of farmers can be maximised. The mathematical basis for agricultural insurance derived in this study can support food security strategies at the national level and further provide a theoretical basis to formulate policies and departmental measures.

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Section: Methodsmentioning

confidence: 99%

How does price insurance alleviate the fluctuation of agricultural product market? A dynamic analysis based on cobweb model

Fu¹,

Shen²,

Huang³

2023

Agric. Econ. - Czech

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Volatility analysis and forecasting of vegetable prices using an ARMA‐GARCH model: An application of the CF filter and seasonal adjustment method to Korean green onions

Qiao,

Ahn

2024

Agribusiness

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The vegetable market experiences significant price fluctuations due to the complex interplay of trend, cyclical, seasonal, and irregular factors. This study takes Korean green onions as an example and employs the Christiano–Fitzgerald filter and the CensusX‐13 seasonal adjustment methods to decompose its price into four components: trend, cyclical, seasonal and irregular fluctuations. To estimate the price volatility and forecast future prices, we apply an ARMA‐GARCH model and use various statistical measures to assess the prediction accuracy. The empirical results demonstrate the effectiveness of ARMA(1, 2)‐GARCH(1, 1) model in modeling and forecasting the seasonally adjusted price of Korean green onions. Our study provides an important reference for expanding research in the field of vegetable price fluctuations and formulating strategies for stabilizing prices. [EconLit Citations: Q11, C22, Q02].

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When cobweb meets oligopoly

Zhang,

Lin,

Wang

et al. 2024

CAER

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PurposeThe purpose of this paper is to present an oligopolistic version of the cobweb model that departs from the strict assumptions of perfect competition in the traditional cobweb model.Design/methodology/approachIntroducing a model where n identical producers engage in Cournot competition, with output decisions influencing market prices. The paper retains the original assumptions of naive expectations and a linear model where price expectations of Cournot competitors are made simultaneously with production decisions. The investigation focuses on the model's behavior as the number of producers decreases or industry concentration increases. The authors also show empirical evidence when drawing the data from the pig sector in China and the USA.FindingsThe findings indicate that the cobweb model undergoes a transition from divergent to continuous and even convergent as the number of producers decreases or industry concentration increases. The incorporation of costs related to entry and exit from the market contributes to achieving a more stable equilibrium state.Originality/valueThe cobweb model has been primarily studied in an idealized market structure of perfect competition, and the assumptions that they share are not obviously appropriate to many agriculture markets. This study presents an alternative version of the cobweb model in an oligopolistic market that relaxes the strict assumptions of perfect competition. The authors show the dynamics of reduced competitor numbers or increased industry concentration on the convergence of the cobweb model based on subtle variations in parameters.

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Cobweb Theory, Market Stability, and Price Expectations

Cited by 3 publications

References 76 publications

How does price insurance alleviate the fluctuation of agricultural product market? A dynamic analysis based on cobweb model

How does price insurance alleviate the fluctuation of agricultural product market? A dynamic analysis based on cobweb model

Volatility analysis and forecasting of vegetable prices using an ARMA‐GARCH model: An application of the CF filter and seasonal adjustment method to Korean green onions

When cobweb meets oligopoly

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