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The Invisible Hand of Laplace: the Role of Market Structure in Price Convergence and Oscillation

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  • Yuval Rabani
  • Leonard J. Schulman

Abstract

A fundamental question about a market is under what conditions, and then how rapidly, does price signaling cause price equilibration. Qualitatively, this ought to depend on how well-connected the market is. We address this question quantitatively for a certain class of Arrow-Debreu markets with continuous-time proportional t\^{a}tonnement dynamics. We show that the algebraic connectivity of the market determines the effectiveness of price signaling equilibration. This also lets us study the rate of external noise that a market can tolerate and still maintain near-equilibrium prices.

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  • Yuval Rabani & Leonard J. Schulman, 2016. "The Invisible Hand of Laplace: the Role of Market Structure in Price Convergence and Oscillation," Papers 1602.07628, arXiv.org.
    • Handle: RePEc:arx:papers:1602.07628
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