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The relevance for modeling market exchanges of local interaction, heterogeneity, and number of agents

Author

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  • Jacopo Di Domenico

    (University of Macerata)

  • Luca Riccetti

    (University of Macerata)

Abstract

We develop a simple model of market exchanges where buyers and sellers are placed in different spatial settings and can meet only counterparts within a certain radius around them, that is, they interact locally and in markets with various levels of imperfect information. Sellers offer a good of high or low quality. Buyers can be available to purchase both types of goods or only one type of good. Sellers can offer the goods at a fixed price or with heterogeneous prices; in the latter case, buyers choose the good with the lowest price. The number of buyers and sellers can change (different scales) and the two sides of the market can also be unbalanced. For each setting, we perform a sensitivity analysis on the radius parameter: buyers can observe sellers located within ranges from very small to very large distances around them. For each level of the radius, we check how many sellers/buyers successfully sell/buy the good. We find highly nonlinear dynamics of the number of realized exchanges when the radius changes. Moreover, the interaction of the reported features (location, heterogeneity of quality and prices, number of agents) creates complex variations in the results with significant implications for those building the model.

Suggested Citation

  • Jacopo Di Domenico & Luca Riccetti, 2025. "The relevance for modeling market exchanges of local interaction, heterogeneity, and number of agents," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 20(3), pages 775-815, July.
    • Handle: RePEc:spr:jeicoo:v:20:y:2025:i:3:d:10.1007_s11403-024-00438-8
    DOI: 10.1007/s11403-024-00438-8
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    More about this item

    Keywords

    Incomplete information; Local interaction; Heterogeneity; Scale; Complexity;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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