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Market Organization

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Author Info

  • Weisbuch, Gerard
  • Alan Kirman
  • Dorothea K. Herreiner

Abstract

In standard economic theory, mechanisms like Adam Smith's "invisible hand" or the Walrasian auctioneer balance aggregate demand and supply and match individuals such that the market clears. Usually, some kind of price adjustment process is assumed without specifying how the implied transactions are organized. In real markets, price adjustment and the matching of buyers and sellers involve considerable exchange of information. Past experience plays an important role in partner selection and in deciding whether a suggested transaction is accepted or not. This implies a process of learning about trading partners and opportunities. The model suggested here, explains how this learning leads to market organization (loyality) or a lack thereof (searching). A decentralized market of a perishable good is considered, where past experience governs the choice of trading partner. Depending on how important past payoffs are and how long the memory is, and depending on the number of players in the market, buyers decide to search or to be loyal. The transition from searching to loyality is very abrupt and resembles phase transitions known from statistical physics. Simulations and empirical evidence from the Marseille wholesale fish market confirm the co-existence of the two behavioral patterns of buyers and the importance of past experience of their behavior.

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Bibliographic Info

Paper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number 391.

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Length: pages
Date of creation: Oct 1996
Date of revision:
Handle: RePEc:bon:bonsfb:391

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Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
Fax: +49 228 73 6884
Web page: http://www.bgse.uni-bonn.de

Related research

Keywords: Decentralized Markets; Market Organization; Reinforcement Learning; Matching; Search; Price Distribution.;

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References

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  1. repec:att:wimass:9521 is not listed on IDEAS
  2. Nicholaas J. Vriend, 1994. "Self-Orgainzed Market in a Decentralized Economy," Working Papers 94-03-013, Santa Fe Institute.
  3. Blume Lawrence E., 1993. "The Statistical Mechanics of Strategic Interaction," Games and Economic Behavior, Elsevier, vol. 5(3), pages 387-424, July.
  4. Arthur, W. Brian & Lane, David A., 1993. "Information contagion," Structural Change and Economic Dynamics, Elsevier, vol. 4(1), pages 81-104, June.
  5. Jackson, Matthew O. & Wolinsky, Asher, 1996. "A Strategic Model of Social and Economic Networks," Journal of Economic Theory, Elsevier, vol. 71(1), pages 44-74, October.
  6. W. Brian Arthur & John H. Holland & Blake LeBaron & Richard Palmer & Paul Taylor, 1996. "Asset Pricing Under Endogenous Expectation in an Artificial Stock Market," Working Papers 96-12-093, Santa Fe Institute.
  7. William A. Brock & Steven N. Durlauf, 1995. "Discrete Choice with Social Interactions I: Theory," Working Papers 95-10-084, Santa Fe Institute.
  8. Weisbuch, G. & Kirman, A.P. & Herreiner, D., 1996. "Market Organisation," G.R.E.Q.A.M. 96a20, Universite Aix-Marseille III.
  9. Orlean, Andre, 1995. "Bayesian interactions and collective dynamics of opinion: Herd behavior and mimetic contagion," Journal of Economic Behavior & Organization, Elsevier, vol. 28(2), pages 257-274, October.
  10. Hardle, Wolfgang & Kirman, Alan, 1995. "Nonclassical demand : A model-free examination of price-quantity relations in the Marseille fish market," Journal of Econometrics, Elsevier, vol. 67(1), pages 227-257, May.
  11. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
  12. Follmer, Hans, 1974. "Random economies with many interacting agents," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 51-62, March.
  13. Peter Diamond, 1985. "Search Theory," Working papers 389, Massachusetts Institute of Technology (MIT), Department of Economics.
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