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Markets as communication systems. Simulating and assessing the performance of market networks

Author

Listed:
  • Galtier, F.
  • Bousquet, F.
  • Antona, M.
  • Bommel, P.

Abstract

As the information relative to endowments, costs and preferences is dispersed among many agents, the quality of resource allocation depends on the ability of markets to communicate information inside the economic system. Because information is transferred through negotiation and transaction behaviors, the network of trading relations defines the channels through which it flows. In the present study, we use new computational tools to analyze the performance of two wholesale trade institutions widely used around the world: network trading and marketplace trading. Whilst network trading and marketplace trading disseminate far fewer bits of information than a perfectly transparent benchmark market, they often manage to generate an allocation of resources that is almost as good. In many cases, network trading proves more effective than marketplace trading (contrary to a common preconception). This surprising performance of network trading is linked to a form of indirect arbitrage induced by connections between networks. Implications for market design and public policy making are presented, along with prospects for further research. ...French Abstract : Comme l’information relative aux dotations, aux coûts et aux préférences est dispersée entre de nombreux agents, la qualité de l’allocation des ressources dépend de la capacité des marchés à diffuser de l’information au sein du système économique. Comme cette information est diffusée par les comportements de négociation et d’échange, le réseau des transactions commerciales définit les canaux par lesquels elle circule. Dans la présente étude, nous utilisons des nouveaux outils de simulation informatique pour analyser la performance de deux institutions largement utilisées dans le monde pour le commerce de gros : le commerce en réseau et le commerce sur des places de marché. Bien que ces deux institutions diffusent une quantité d’information beaucoup plus faible qu’un marché parfaitement transparent (institution témoin), elles parviennent à générer une allocation des ressources qui est presque aussi bonne. Dans de nombreux cas, le commerce en réseau s’avère plus efficace que le commerce sur des places de marché (contrairement à une idée très répandue). Cette performance étonnante du commerce en réseau est liée à une forme d’arbitrage indirect induite par les connexions entre réseaux. Ces résultats ont différentes implications pour la conception d’institutions de marché et pour les politiques publiques. Ils ouvrent aussi de nouvelles pistes de recherche.

Suggested Citation

  • Galtier, F. & Bousquet, F. & Antona, M. & Bommel, P., 2012. "Markets as communication systems. Simulating and assessing the performance of market networks," Working Papers MoISA 201202, UMR MoISA : Montpellier Interdisciplinary center on Sustainable Agri-food systems (social and nutritional sciences): CIHEAM-IAMM, CIRAD, INRAE, L'Institut Agro, Montpellier SupAgro, IRD - Montpellier, France.
    • Handle: RePEc:umr:wpaper:201202
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    References listed on IDEAS

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    Cited by:

    1. Orlando Gomes & J. C. Sprott, 2017. "Sentiment-driven limit cycles and chaos," Journal of Evolutionary Economics, Springer, vol. 27(4), pages 729-760, September.

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    More about this item

    Keywords

    MARKET DESIGN; MARKET PROCESS; INFORMATIONAL EFFICIENCY; AGENT-BASED COMPUTATIONAL ECONOMICS; MULTI-AGENT SYSTEM; DECENTRALIZED MARKET; EFFICIENCE INFORMATIONNELLE; SYSTEMES MULTI-AGENTS; MARCHES DECENTRALISES;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

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