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Markets as communication systems. Simulating and assessing the performance of market networks

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Author Info

  • Galtier, F.
  • Bousquet, F.
  • Antona, M.
  • Bommel, P.

Abstract

As the information relative to endowments, costs and preferences is dispersed among many agents, the quality of resource allocation depends on the ability of markets to communicate information inside the economic system. Because information is transferred through negotiation and transaction behaviors, the network of trading relations defines the channels through which it flows. In the present study, we use new computational tools to analyze the performance of two wholesale trade institutions widely used around the world: network trading and marketplace trading. Whilst network trading and marketplace trading disseminate far fewer bits of information than a perfectly transparent benchmark market, they often manage to generate an allocation of resources that is almost as good. In many cases, network trading proves more effective than marketplace trading (contrary to a common preconception). This surprising performance of network trading is linked to a form of indirect arbitrage induced by connections between networks. Implications for market design and public policy making are presented, along with prospects for further research. ...French Abstract : Comme l’information relative aux dotations, aux coûts et aux préférences est dispersée entre de nombreux agents, la qualité de l’allocation des ressources dépend de la capacité des marchés à diffuser de l’information au sein du système économique. Comme cette information est diffusée par les comportements de négociation et d’échange, le réseau des transactions commerciales définit les canaux par lesquels elle circule. Dans la présente étude, nous utilisons des nouveaux outils de simulation informatique pour analyser la performance de deux institutions largement utilisées dans le monde pour le commerce de gros : le commerce en réseau et le commerce sur des places de marché. Bien que ces deux institutions diffusent une quantité d’information beaucoup plus faible qu’un marché parfaitement transparent (institution témoin), elles parviennent à générer une allocation des ressources qui est presque aussi bonne. Dans de nombreux cas, le commerce en réseau s’avère plus efficace que le commerce sur des places de marché (contrairement à une idée très répandue). Cette performance étonnante du commerce en réseau est liée à une forme d’arbitrage indirect induite par les connexions entre réseaux. Ces résultats ont différentes implications pour la conception d’institutions de marché et pour les politiques publiques. Ils ouvrent aussi de nouvelles pistes de recherche.

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Bibliographic Info

Paper provided by UMR MOISA : Marchés, Organisations, Institutions et Stratégies d'Acteurs : CIHEAM-IAMM, CIRAD, INRA, Montpellier SupAgro, IRD - Montpellier, France in its series Working Papers MOISA with number 201202.

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Date of creation: 2012
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Handle: RePEc:umr:wpaper:201202

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Keywords: MARKET DESIGN; MARKET PROCESS; INFORMATIONAL EFFICIENCY; AGENT-BASED COMPUTATIONAL ECONOMICS; MULTI-AGENT SYSTEM; DECENTRALIZED MARKET; EFFICIENCE INFORMATIONNELLE; SYSTEMES MULTI-AGENTS; MARCHES DECENTRALISES;

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  1. Marcel Fafchamps & Bart Minten, 2001. "Social Capital and Agricultural Trade," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(3), pages 680-685.
  2. Erno Kuiper, W. & Lutz, Clemens & van Tilburg, Aad, 2003. "Vertical price leadership on local maize markets in Benin," Journal of Development Economics, Elsevier, vol. 71(2), pages 417-433, August.
  3. Corominas-Bosch, Margarida, 2004. "Bargaining in a network of buyers and sellers," Journal of Economic Theory, Elsevier, vol. 115(1), pages 35-77, March.
  4. Bramoullé, Yann & Kranton, Rachel, 2007. "Risk-sharing networks," Journal of Economic Behavior & Organization, Elsevier, vol. 64(3-4), pages 275-294.
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