Market Organisation

Gerard Weisbuch
E.N.S., Paris

Alan Kirman
EHESS, Universite d'Aix-Marseille III
Kirman@ehess.cnrs-mrs.fr

Dorothea Herreiner
Wooster College, Ohio

Abstract

In standard economic theory, the mechanisms which balance aggregate buyers' demand and sellers' supply and which organise the exchanges necessary to clear the market are left unspecified (Adam Smith's ``invisible hand", Walrasian tatonnement). The main idea behind this simplification is that supply and demand adjust during a preliminary phase until equibrium prices are reached. Transactions that clear the market are then performed in some unexplained way.

In real markets, price adjustment and the matching of buyers and sellers involve considerable exchange of information. Previous experience is also important in partner selection and in the decision to accept a transaction. The dynamic processes involved can be described in terms taken from cognitive science such as learning and recognition. We have attempted to model such organization in markets for perishable goods. Our model is based on preferential choice of sellers by buyers according to fidelity parameters which are specific to buyer and seller pairs. Fidelity parameters depend upon the previous history of transactions between partners. We have shown that depending upon how much they care about previous profits in selecting their trading partners, buyers become either faithful partners or searchers. The transition between the two behaviors resembles phase transitions in statistical physics. Analysis of data from the Marseille wholesale fish market confirms this clear distinction between the two possible behaviors and its relation to past profits.