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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Paper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number
391.
Length: pages Date of creation: Oct 1996 Date of revision: Handle: RePEc:bon:bonsfb:391
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Find related papers by JEL classification: D40 - Microeconomics - - Market Structure and Pricing - - - General D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
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Other versions:
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[Downloadable!] (restricted)
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
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"Evolving Networks of Inventors,"
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[Downloadable!]
Weisbuch, Gerard & Alan Kirman & Dorothea K. Herreiner, 1996.
"Market Organization,"
Discussion Paper Serie B
391, University of Bonn, Germany.
[Downloadable!]
Other versions:
Weel,B.J.,ter, 1997.
"Cybertax,"
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[Downloadable!]
Other versions:
Soete,Luc & Weel,Bas,ter, 1998.
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Research Memoranda
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[Downloadable!]