This paper established a Hotelling model with bounded rationality, and analyzed the complexity of the dynamic system. By theory solution and numerical simulation we can get the conclusion that under bounded rationality, the coefficients of the price adjustment, the place, the deviation cost of the products and other parameter values determined the stability, the output bifurcation, profit bifurcation and chaotic state of the dynamic system. When the coefficients of price adjustment are in a proper range, Hotelling equilibrium can be realized as a stable dynamic equilibrium. Otherwise, the equilibrium will become unstable, bifurcation and chaos will occur to the economic system. If the economic system enters into chaotic state, a small variation in the initial value will cause a huge fluctuation of the price, then the market become unpredictable and the players can't make a reasonable decision of the future price; Delay feedback control can make the system from a chaotic state to a stable state. Demonstrated enterprises horizontal differentiation can increase the system stability.
Key words
bounded rationality /
Hotelling model /
price adjustment /
chaos /
delay feedback control
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