In this paper, we enrich the traditional cobweb model by incorporating vertical
linkages between agricultural markets, an important aspect of agricultural production in less
developed countries that has been largely ignored by the existing literature on chaotic cobweb
models. To this end, under sufficiently general cost and demand functions, we develop a
parsimonious, dynamic model to capture mutual interdependencies between upstream and
downstream markets arising from the vertically linked structure of agricultural values chains.
The model is solved under the naïve expectations hypothesis to derive a system of coupled, time delay
difference equations characterizing price dynamics in vertically linked cobweb markets.
Mathematical and numerical analyses reveal that vertical linkages between downstream and
upstream cobweb markets have profound effects on local stability, global price dynamics and
onset of chaos. We also add an empirical dimension to an otherwise theoretical literature by
benchmarking moments of prices simulated by our model against actual poultry value chain
price data from Pakistan. Simulated prices reproduce the stylized patterns observed in the actual
price data, i.e., quasi-periodic behavior, positive first-order autocorrelation, relatively higher
variation in upstream prices compared to downstream prices, low skewness and negative
kurtosis. In doing so the paper addresses a major criticism of the theory of endogenous price
fluctuations, most notably the failure of chaotic cobweb models to adequately replicate positively
auto correlated prices. From a policy perspective, our model predicts that the increasingly
unpredictable behavior of agricultural commodity prices in less developed countries may be
driven by improvements in technological efficiency at the downstream level, combined with
declines in consumer’s sensitivity to agricultural commodity prices.