When the firm prevents the crash: Avoiding market collapse with partial control

Area of Science:

• Economics
• Economic modeling
• Market dynamics

Background:

• Market collapse is a severe economic event driven by micro-level nonlinear interactions.
• Transient chaos describes the behavior of collapsing markets.
• Existing control methods often influence systems externally.

Purpose of the Study:

• To apply a novel partial control method to prevent market collapse in an economic system.
• To investigate bottom-up market control initiated by individual firms.
• To analyze the impact of external disturbances on market stability and control effectiveness.

Main Methods:

• Application of the partial control method to a strictly economic system.
• Simulation of market dynamics with firms adjusting selling price or production quantity.
• Introduction of external disturbances to test system resilience.
• Analysis of a firm with a large market share influencing demand.

Main Results:

• Firms can prevent market collapse by adjusting prices or production, even with external disturbances.
• A firm with significant market share can achieve price stability across retail and wholesale markets.
• The control exerted by firms is substantially smaller than the magnitude of external disturbances.

Conclusions:

• The partial control method offers an effective bottom-up strategy for economic stabilization.
• Individual firms play a crucial role in mitigating market volatility and preventing collapse.
• This approach demonstrates resilience against significant external economic shocks.