Market Organization

In standard economic theory, buyers’ demand and sellers’ supply are matched by “invisible mechanisms” (Adam Smith’s “invisible hand,” Walrasian tâtonnement). 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 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.