Endogenous Strategic Business Cycles

This paper examines an overlapping generations version of the Shapley-Shubik market game. We show existence of equilibria for the simple one commodity model and analyze the dynamics of the equilibrium trajectories generated in the model. Because of the non-linearities generated by strategic interaction of agents in the model, we find that complex and chaotic equilibrium dynamics are possible in this model for a much broader range of preferences than those for which Grandmont (1985) found complicated dynamics in the perfectly competitive version of this model. These results, then, provide an alternative to the usual technology-based explanation for the historical fact that business cycles became an important economic phenomenon only with the onset of industrialization.