Profitability Analysis of Price-Taking Strategy in Disequilibrium

Conventional economic assumption that more sophistication in decision makingis better than less is challenged with a profitability analysis conducted withan oligopolistic model consisting of a naive firm and a group of sophisticatedfirms. While the naive firm is assumed to adopt a simple Cobweb strategy byequating its marginal cost of current production to the last period's price,the sophisticated firms can take either individually or collusively anyconventional sophisticated strategy such as Cournot and Stackelbergstrategies. Contrary to the economic intuition, it is not the sophisticated firms but thenaive firm who triumphs in equilibrium as well as during the dynamical transitionaryperiods, no matter what strategies the sophisticated firms may take. Moreover, when the economy turns cyclic or chaotic, a combination of the Cobweb strategy with a cautious adjustmentstrategy could also bring relative higher average profits for the naive firmthan its rivals