MARKET GAMES AND PRICE FORMATION. A GENERALIZED GAME THEORY PERSPECTIVE (GGT) ON DIVERSE TYPES OF HOMOGENEOUS AND HETEROGENEOUS MARKETS
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Price bargaining games between market participants can be conceptualized as a population of players (buyers and sellers) who are conscious of being involved in an interaction situation or game with others at time 't'. Players have defined roles and role relationships (although not all roles and role relationships need be well defined). They operate more or less according to a common rule complex, that is, they share common knowledge of the game including their respective roles and specific rules of the game. This type of game is conceptualized in this paper within Generalized Game Theory (GGT) based on conceptions of rules and rule complexes underlying all social interaction. The paper examines the judgment bases of producers/sellers as well as consumers in different types of markets: staples or basic goods markets, quality goods markets where consumers are concerned more (up to a limit) with quality than with price, and status goods markets where consumers are oriented to the status gains provided by the goods or services. The analysis also considers the market power dimension in terms of competitive or monopoly conditions. The interaction analysis results in specification of market elasticities and price determination patterns in the different markets including markets with large populations of buyers and sellers. The organization of such markets, given populations of buyers and sellers with certain characteristics, is shown to affect in specifiable ways price levels, price dispersion, and volume of trade. The paper shows that a brokered market has a defined price dispersion in contrast to the equilibrium price of the Walrasian market. And the Walrasian 'equilibrium price' tends to be lower than the average price on a brokered market, other things being equal. Moreover, under certain conditions, the Walrasian auctioneer market has only 1/2 of the transaction volume of a market organized by a perfect broker. The article shows the usefulness of GGT in modelling market behavior based on (1) GGT conceptualizations of micro-processes, in particular value and judgment processes; and (2) GGT institutional analysis of 'market coordination' in the case of multi-agent systems.
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