Self-organised adjustments in a market with price-setting firms

• The model depicts a single market where firms select prices every new transaction date. The customers, who are input-purchasing firms, decide every new date how much to buy from each supplier. The optimisation decisions of customers are based on price information and are, in addition, influenced by adjustment costs associated with changing the amount ordered (purchased) from each supplier. It is shown that such a market can have a stable equilibrium even when the product sold on the market is completely homogenous. Moreover, the solution is compatible with U-shaped, decreasing and increasing costs of the supplying firms. The main result is that if the transaction inertia is sufficiently strong, it will stabilise the market adjustment process. In equilibrium the market has a self-organised structure of transactions.

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cost

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