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Smart systems and simple agents: industry pricing by parallel rules

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Author Info
Raymond Board
P.A. Tinsley

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Abstract

A standard macroeconomic specification is that the aggregate economy is directed by a single, smart representative agent using optimal decision rules. This paper explores an alternative conjecture--that the dynamic behavior of markets is often better interpreted as the interactions of many heterogeneous, rule-of-thumb agents who are loosely coupled in smart systems--much like the contrast of a single serial processor with global information versus parallel processors with limited communications. The illustration used in this paper is the contrast between a conventional macro model of sluggish adjustments in an aggregate producer price index and a model of delayed industry price adjustments in a distributed production system under costly inter-firm communications.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1996-50.

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Date of creation: 1996
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Handle: RePEc:fip:fedgfe:1996-50

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Keywords: Prices;

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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.:
  1. Qualls, P David, 1979. "Market Structure and the Cyclical Flexibility of Price-Cost Margins," Journal of Business, University of Chicago Press, vol. 52(2), pages 305-25, April. [Downloadable!] (restricted)
  2. Thomas J. Sargent, 1981. "The ends of four big inflations," Working Papers 158, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  3. Waterson, Michael, 1982. "Vertical Integration, Variable Proportions and Oligopoly," Economic Journal, Royal Economic Society, vol. 92(365), pages 129-44, March. [Downloadable!] (restricted)
  4. Gordon, Robert J, 1981. "Output Fluctuations and Gradual Price Adjustment," Journal of Economic Literature, American Economic Association, vol. 19(2), pages 493-530, June. [Downloadable!] (restricted)
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  5. Gordon, Robert J, 1990. "What Is New-Keynesian Economics?," Journal of Economic Literature, American Economic Association, vol. 28(3), pages 1115-71, September. [Downloadable!] (restricted)
  6. Caplin, Andrew S & Spulber, Daniel F, 1987. "Menu Costs and the Neutrality of Money," The Quarterly Journal of Economics, MIT Press, vol. 102(4), pages 703-25, November. [Downloadable!] (restricted)
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  7. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
  8. Domowitz, Ian & Hubbard, R Glenn & Petersen, Bruce C, 1987. "Oligopoly Supergames: Some Empirical Evidence on Prices and Margins," Journal of Industrial Economics, Blackwell Publishing, vol. 35(4), pages 379-98, June. [Downloadable!] (restricted)
  9. Laurence Ball & N. Gregory Mankiw, 1994. "Asymmetric Price Adjustment and Economic Fluctuations," NBER Working Papers 4089, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January. [Downloadable!] (restricted)
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  11. Tsiddon, Daniel, 1993. "The (Mis)Behaviour of the Aggregate Price Level," Review of Economic Studies, Blackwell Publishing, vol. 60(4), pages 889-902, October. [Downloadable!] (restricted)
  12. Eckard, E Woodrow, Jr, 1982. "Firm Market Share, Price Flexibility, and Imperfect Information," Economic Inquiry, Oxford University Press, vol. 20(3), pages 388-92, July.
  13. Fisher, P. G. & Holly, S. & Hughes Hallett, A. J., 1986. "Efficient solution techniques for dynamic non-linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 10(1-2), pages 139-145, June. [Downloadable!] (restricted)
  14. Gode, Dhananjay K & Sunder, Shyam, 1993. "Allocative Efficiency of Markets with Zero-Intelligence Traders: Market as a Partial Substitute for Individual Rationality," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 119-37, February. [Downloadable!] (restricted)
  15. P.A. Tinsley, 1993. "Fitting both data and theories: polynomial adjustment costs and error- correction decision rules," Finance and Economics Discussion Series 93-21, Board of Governors of the Federal Reserve System (U.S.).
  16. Perry, Martin K., 1989. "Vertical integration: Determinants and effects," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 4, pages 183-255 Elsevier. [Downloadable!] (restricted)
  17. Schmalensee, Richard, 1989. "Inter-industry studies of structure and performance," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 16, pages 951-1009 Elsevier. [Downloadable!] (restricted)
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  18. Blinder, Alan S, 1991. "Why Are Prices Sticky? Preliminary Results from an Interview Study," American Economic Review, American Economic Association, vol. 81(2), pages 89-96, May. [Downloadable!] (restricted)
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  19. Carlton, Dennis W, 1986. "The Rigidity of Prices," American Economic Review, American Economic Association, vol. 76(4), pages 637-58, September. [Downloadable!] (restricted)
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  20. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December. [Downloadable!] (restricted)
  21. Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June. [Downloadable!] (restricted)
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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.)

  1. Jon Faust & Ralph Tryon, 1994. "A distributed block approach to solving near-block-diagonal systems with an application to a large macroeconometric model," International Finance Discussion Papers 488, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  2. John Rust, 1996. "Dealing with the Complexity of Economic Calculations," Computational Economics 9610002, EconWPA, revised 21 Oct 1997. [Downloadable!]
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