Evolving market structure: An ACE model of price dispersion and loyalty

Abstract

We present an agent-based computational economics (ACE) model of the wholesale "sh market in Marseille. Two of the stylized facts of that market are high loyalty of buyers to sellers, and persistent price dispersion, although it is every day the same population of sellers and buyers that meets in the same market hall. In our ACE model, sellers decide on quantities to supply, prices to ask, and how to treat loyal customers, while buyers decide which sellers to visit, and which prices to accept. Learning takes place through reinforcement. The model explains both stylized facts price dispersion and high loyalty. In a coevolutionary process, buyers learn to become loyal as sellers learn to o!er higher utility to loyal buyers, while these sellers, in turn, learn to o!er higher utility to loyal buyers as they happen to realize higher gross revenues from loyal buyers. The model also explains the e!ect of heterogeneity of the buyers. We analyze how this leads to subtle di!erences in the shopping patterns of the di!erent types of buyers, and how this is For example, according to Royal Mail (1999)`more than 25 percent of all people do not consider themselves loyal to any businessa, implying that about 75% is loyal to some business. related to the behavior of the sellers in the market.

The Strategic Exploitation of Limited Information and Opportunity in Networked Markets

“…Over time these preferences lead to the formation of stable networks over which trade occurs. This process has been examined in several settings, for example labour markets (Tesfatsion 2001), buyer seller relationships (Kirman and Vriend 2001) and the emergence of money and shops (Howitt and Clower 2000) (see Vriend 2006, for a review). This paper will focus on the effects of market segregation on market dynamics.…”

Evolving networks of inventors

“…The repetition of these actions results in a network that emerges and evolves over time. The aim here is to identify the properties of the structures and behaviours that emerge (see for example Cowan et al 2003;Kirman and Vriend, 2001;or Plouraboué et al 1998).…”

Chapter 21 ACE Models of Endogenous Interactions

“…Imperfectly informed agents are open enough for new contacts while all the time updating their beliefs about their environment. Kirman and Vriend (2001): expected payoff/familiarity Kirman and Vriend (2001) study the evolving structure of an actual market: the wholesale fish market of Marseille. They focus in particular on two stylized facts of that real market: price dispersion and the loyalty of buyers to sellers.…”