Local network externalities and market dynamics : an agent-based computational economicsapproach

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Title: Local network externalities and market dynamics : an agent-based computational economicsapproach
Author: Westling, Tatu
Contributor: University of Helsinki, Faculty of Social Sciences, Department of Political Science
Date: 2006-08-27
Language: en
URI: http://hdl.handle.net/10138/11365
Thesis level: master's thesis
Abstract: This thesis examines the implications of local network externalities on market dynamics. The subjects of study are prices, welfare, segmentation of markets and firms' withdrawing from market. Additionally, the effect of varying levels of firm rationality to subject mentioned are studied. The methodology involved is that of agent-based computational economics. A computer model has been written to simulate the markets. In the model firms try to maximise their profits by searching for optimal pricing strategies. Since there are many firms involved, fictitious play had to be implemented to model interaction among firms. Consumers are located on toroidal lattice and consume goods according to probabilistic rules. This interplay between consumers and firms give rise to market dynamics which is then analysed. Markets are quite balanced, with no monopolisation taking place. In the long-run oligopolistic markets prevail. The prices are inversely correlated with number of firms on the market. Welfare depends on the preferences for network externality of consumers; if strong, markets with less number of firms are utility enhancing; if moderate, the increasing number of firms yields higher welfare. Exit of firms from the market is fast on the beginning, but slows afterwards. If consumers prefer for local network externality is strong, it results in less exits and more firms and goods at market. Profits are associated negatively with firm rationality. The less rational the firms, the faster they exit the market. It seems that model incorporating both profit maximising firms and consumers that are subject to local network externalities, has not been implemented before. The main finding of this thesis is that the markets that involve local network externalities are rather prosaic, and no monopolisation has been found. The stabilising factor seems to be the profit taking behaviour of firms, which in fact sustain the competitive market structure. References: E. Kutschinski, T. Uthmann and D. Polani (2003): Learning competitive pricing strategies by multi-agent reinforcement learning. Journal of Economic Dynamics and Control 7:2207-2218. R. Cowan and J. Miller (1998): Technological Standards with local externalities and decentralized behaviour. Journal of Evolutionary Economics, 8:285-296.
Description: Endast sammandrag. Inbundna avhandlingar kan sökas i Helka-databasen (http://www.helsinki.fi/helka). Elektroniska kopior av avhandlingar finns antingen öppet på nätet eller endast tillgängliga i bibliotekets avhandlingsterminaler.Only abstract. Paper copies of master’s theses are listed in the Helka database (http://www.helsinki.fi/helka). Electronic copies of master’s theses are either available as open access or only on thesis terminals in the Helsinki University Library.Vain tiivistelmä. Sidottujen gradujen saatavuuden voit tarkistaa Helka-tietokannasta (http://www.helsinki.fi/helka). Digitaaliset gradut voivat olla luettavissa avoimesti verkossa tai rajoitetusti kirjaston opinnäytekioskeilla.
Subject: local network externalities
market dynamics
computational economics

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