Large Number Of Buyers Research Articles

Information precision and asymptotic efficiency of industrial markets

I present a strategic model of a bilateral oligopoly with asymmetric information to examine (i) the validity of the conjecture of price-taking behavior in such markets as the number of agents becomes large and (ii) the effect of the rate that individual information precision decreases with increased number of agents on convergence to price-taking and efficiency. I show that with downstream competition, increasing the number of sellers may make all participants price-takers in the limit, but increasing the number of buyers may not. When the total precision of information in the market is high, price-taking and full social efficiency is achieved in the limit with large numbers of buyers and sellers. However, if the total precision of information in the market is poor, price-taking conjecture may fail and large inefficiencies, including full inefficiency, can occur in the limiting outcome. The rate of decrease of individual information precision with increased number of agents determines the rate of convergence to efficiency, and the convergence is slower than that predicted by single-unit auction models in the literature. I also demonstrate that when the number of sellers or both the number of buyers and the sellers go to infinity, price-taking and information aggregation tend to go together. When the number of buyers goes to infinity, however, information can get aggregated when the agents do not become price-takers in the limit. Albeit, in the latter case, the aggregated information is masked by the noise in the sellers’ signals and the cost variability.

Multiple equilibria in a monopoly market with heterogeneous agents and externalities

We explore the effects of social influence in a simple market model in which a large number of agents face a binary choice: to buy/not to buy a single unit of a product at a price posted by a single seller (monopoly market). We consider the case of positive externalities: an agent is more willing to buy if other agents make the same decision. We consider two special cases of heterogeneity in the individuals' decision rules, corresponding in the literature to the Random Utility Models of Thurstone, and of McFadden and Manski. In the first one the heterogeneity fluctuates with time, leading to a standard model in Physics: the Ising model at finite temperature (known as annealed disorder) in a uniform external field. In the second approach the heterogeneity among agents is fixed; in Physics this is a particular case of the quenched disorder model known as a random field Ising model, at zero temperature. We study analytically the equilibrium properties of the market in the limiting case where each agent is influenced by all the others (the mean field limit), and we illustrate some dynamic properties of these models making use of numerical simulations in an Agent based Computational Economics approach. Considering the optimization of the profit by the seller within the case of fixed heterogeneity with global externality, we exhibit a new regime where, if the mean willingness to pay increases and/or the production costs decrease, the seller's optimal strategy jumps from a solution with a high price and a small number of buyers, to another one with a low price and a large number of buyers. This regime, usually modelled with ad hoc bimodal distributions of the idiosyncratic heterogeneity, arises here for general monomodal distributions if the social influence is strong enough.

Seller's dilemma due to social interactions between customers

In this paper, we consider a discrete choice model where heterogeneous agents are subject to mutual influences. We explore some consequences on the market's behaviour, in the simplest case of a uniform willingness to pay distribution. We exhibit a first-order phase transition in the profit optimization by the monopolist: if the social influence is strong enough, there is a regime where, if the mean willingness to pay increases, or if the production costs decrease, the optimal solution for the monopolist jumps from a solution with a high price and a small number of buyers, to a solution with a low price and a large number of buyers. Depending on the path of prices adjustments by the monopolist, simulations show hysteretic effects on the fraction of buyers.

Market Research and Market Design

We study trading models when the distribution of signals such as costs or values is not known to traders or the mechanism designer when the profit-maximizing trading procedure is designed. We present adaptive mechanisms that simultaneously elicit this information (market research) while maintaining incentive compatibility and maximizing profits when the set of traders is large (market design). First, we study a monopoly pricing model where neither the seller nor the buyers know the distribution of values. Second, we study a model with a broker intermediating trade between a large number of buyers and sellers with private information about their valuations and costs. We show that when the set of traders becomes large our adaptive mechanisms achieve the same expected profits for the monopolist and the broker as when the distribution of signals is common knowledge.

Markets Versus Negotiations: The Emergence of Centralized Markets

We study the incentives of privately informed traders who have access to two forms of trade: direct negotiations with a small number of buyers and sellers (or decentralized trade), and centralized markets with a relatively large number of buyers and sellers. We show that weak trader types (that is, buyers with a high willingness to pay and sellers with low costs) will prefer to trade through centralized markets. This leads to a complete unraveling of direct negotiations, so that ultimately, all serious buyers and sellers opt for trading through the centralized market. Once this happens, no trader can profitably trade through direct negotiations.

An integrated supplier-buyer model for improving supply chain coordination

This study develops a decision support model that can be used by a supplier in making production and price decisions at contract renewal times in a supply chain environment. The supplier first makes aggregate production decisions with a special attempt to estimate buyer commitments, and then determines the price of the item so as to satisfy his own profit and buyer cost reduction expectations simultaneously. Mathematical programming models are designed to achieve these in accordance with the contract terms. The main emphasis is placed upon the conceptual and negotiation aspects of the models, and some solution procedures are cited from previous studies. Then the approach is implemented in the biggest electric motor manufacturer in Turkey which has a large number of buyers in household appliances sector, and it is shown to be a useful tool for developing fair partnership.

Rational, emotional and normfollowing actors and liberal free trade in the Norwegian electricity market

This article explores the implications of different behavioral assumptions for market outcomes. This is done by modeling emotionally and normatively oriented actors alongside the ‘rational’ economic ideal type in a system dynamics simulation of a free trade market. The simulation exercise has a concrete case focus, as the model incorporates stylized elements of the Norwegian electricity market, which is a free trade market with a large number of buyers and sellers. The article has three sections. The first section gives a short overview of the three ideal type actors and the behavioral assumptions behind them. The second section presents a simulation model of the Norwegian electricity market, a free trade market with more than 130 actors. One of the peculiarities of this market is its exposure to seasonal and yearly variations in rainfall, as Norwegian electricity production is almost exclusively hydropower based. This exogenously generated variation in production capacity creates distortions that trigger endogenous behavioral reactions in our model. The third section presents the results of the modeling exercise, showing that actor rationality does matter for price generation in a competitive market. Moving from a market dominated by calculative behavior towards a market dominated by emotional behavior causes greater volatility in market prices and more pronounced price cycles.

Natural gas contracts in an emerging competitive market

The price and duration of natural gas contracts are analysed to determine that electric and gas utilities in the USA can obtain long-run reliable supplies of natural gas at prevailing market prices. Open access to gas transmission lines has created a market with a large number of buyers and sellers that provides reliable gas supplies. The transaction cost literature on contracts suggests that spot purchases and short-term contracts have become more efficient than the long-term fixed price contracts that typifield the gas industry before the 1980s. An efficient supply of gas requires increasing contracting options and reducing regulatory approval of contracts. For instance, gas marketers, with access to local distribution of pipelines, could offer customers a menu of contract choices for gas and energy services. Alternatively, distribution companies could offer their customers a diversity of contracts. Some regulatory inefficiencies are avoided by automatically setting the allowable cost of gas to current market prices.

Anarchy, the Market, and the State

The characteristics of private and public goods, and the conditions defining the Pareto optimal allocation of each are as opposite as are anarchy and dictatorship. Pareto optimality with private goods requires the horizontal summation of demand schedules, the equation of each individual's marginal rate of substitution to the price ratio. Pareto optimality with public goods requires vertical summation of demand schedules, the equation of the summation of marginal rates of substitution to the price ratio. Increasing the number of buyers and sellers improves the allocation of private goods, as does increasing their mobility. The orderly anarchy of the market achieves a Pareto optimal allocation of resources for pure private goods, if there is either a large number of buyers and sellers, or perfect mobility into and out of all markets.' In contrast, Pareto optimality in the anarchic provision of a pure public good can be assumed with certainty only in the trivial case of a community of one. Once Crusoe is joined by Friday, public goods provision becomes a prisoners' dilemma with non-Pareto outcomes likely. With small numbers, Pareto optimality may still emerge in an anarchic prisoners' dilemma game, if the same players repeat the game indefinitely, through the familiar logic of the prisoners' dilemma supergame [12, ch. 2; 1]. Thus, small numbers and immobility favor the anarchic achievement of Pareto optimality for public goods provision, just as large numbers and high mobility favor the anarchic achievement of Pareto optimality in private goods markets. This dichotomous view of the potential for a Pareto optimal allocation of resources under anarchy has the obvious twin implication, that the case for government intervention is strongest when the numbers of buyers and sellers of private goods are small and mobility absent, and for public goods when numbers are large and mobility high. Although this dichotomous depiction of the allocation problem is highly simplified, it does provide some insight into where we can (should) expect to find governments intervening, where we can (should) not. Now consider the further implication. The characteristics of a community in terms of the number of members and their mobility are usually the same with respect to both private goods allocation and public goods allocation. A medieval village consisted of a small number of families, most of whose members never traveled more than a few kilometers from the village throughout their lives. This same small group of people would confront each other in the many public good-prisoners' dilemma situations a community faces, as they would in whatever market transactions that took place. One expects from the discussion above that the provision of public goods in a medieval village, e.g., law and order, and the resolution of other prisoners'

Charging for Countryside Recreation: A Review with Implications for Scotland

Pricing for countryside recreation is examined within the general economic context of pricing. Possible uses of pricing in countryside recreation are outlined, along with possible objections to its use. A selected review is presented of the literature (mainly American) on the economics of pricing for countryside recreation. The conclusions from this review are examined with regard to their relevance for countryside recreation in Scotland. THE ECONOMIC CONTEXT OF PRICING IN COUNTRYSIDE RECREATION IN our world of scarcity, all goods and services are ultimately rationed or allocated.' One way of allocating or rationing something is to charge a price for it. The price mechanism acts to ration production and consumption of a commodity or service, although neither the buyer nor the seller need intend this result or be conscious of it. There are other methods of allocation, of course, such as queuing ('first-come-first-served'), administrative rationing (as in wartime food coupons), political bargaining (to influence politically determined distributions of goods and services), and fighting (as between nations competing for some particular resource). In our predominantly market-oriented economy, pricing is the most commonly used of these allocation mechanisms, but it is certainly not the only one. If prices are not charged, then inevitably there will come into operation some other method(s) of rationing.2 Unfortunately, many of those who are sceptical about the role of pricing and who accuse economists of being like Oscar Wilde's cynics-who know the price of everything and the value of nothing-do not explain what rationing method should be used instead of prices. Prices function well in this allocative role through the interaction of supply and demand in a 'free market'. If, for any commodity, there is a large number of buyers (demand) interacting frequently with the offerings of a large number of sellers (supply), then the market price will tend toward the level at which demand equals supply (equilibrium), there will be no glut of unsold commodities, and nobody who can afford that price will be unsatisfied. When this happy (and perhaps unlikely) situation applies not just to one, but to all commodities, then there is said to be a general equilibrium in the economy as a whole: the correct amounts of resources are devoted to individual economic sectors so that the maximum overall customer satisfaction is