Next: Introduction
Spatial competition and price formation
Per Bakpb
Niels Bohr Institute, University of Copenhagen, Denmark
Abstract:
We look at price formation in a retail setting, that is, companies
set prices, and consumers either accept prices or go someplace else.
In contrast to most other models in this context, we use a
two-dimensional spatial structure for information transmission, that
is, consumers can only learn from nearest neighbors. Many aspects
of this can be understood in terms of generalized evolutionary
dynamics. In consequence, we first look at spatial competition and
cluster formation without price. This leads to establishement size
distributions, which we compare to reality. After some theoretical
considerations, which at least heuristically explain our simulation
results, we finally return to price formation, where we demonstrate
that our simple model with nearly no organized planning or
rationality on the part of any of the agents indeed leads to an
economically plausible price.
Kai Nagel
2002-06-18