A process of demand discovery from a smithian perspective

We propose a theoretical representation of how agents estimate demand through a market learning process. To this end, we model a traditional marketplace by interpreting Smith’s theory of the convergence of the market price to the natural price, understood as the reserve price. In this model, natural price is obtained through a bargaining process between consumers and producers. We use a repeated multi-period game with producers deciding their offers and both, consumers and producers, in an imperfect type of competition. Producers estimate the demand at the reserve price thanks to information provided by competition as rivalry between consumers and between producers. But the stronger this competition is, the slower the discovery process.