Issue |
E.J.E.S.S.
Volume 15, Number 3, 2001
Evolution and Learning in Markets
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Page(s) | 185 - 202 | |
DOI | https://doi.org/10.1051/ejess:2001104 |
European Journal of Economic and Social Systems 15 N°3 (2001) 185-202
A Model of Market-making
Nicolaas J. VriendQueen Mary, University of London, Dept. of Economics, Mile End Road, London, E1 4NS, UK. n.vriend@qmul.ac.uk
Abstract
The two essential features of a decentralized economy taken into account are, first, that individual
agents need some information about other agents in order to meet potential trading partners, which
requires some communication or interaction between these agents, and second, that in general agents
will face trading uncertainty. We consider trade in a homogeneous commodity. Firms decide upon
their effective supplies, and may create their own markets by sending information signals
communicating their willingness to sell. Meeting of potential trading partners is arranged in the form
of shopping by consumers. The questions to be considered are: How do firms compete in such
markets? And what are the properties of an equilibrium? We establish existence conditions for a
symmetric Nash equilibrium in the firms' strategies, and analyze its characteristics. The developed
framework appears to lend itself well to study many typical phenomena of decentralized economies,
such as the emergence of central markets, the role of middlemen, and price-making.
Key words: Decentralized Trade, Market-making, Communication, Networks, Trading Uncertainty
© EDP Sciences 2001