A process of demand discovery from a smithian perspective

Michele Bee and Juan Pablo Gama
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Michele Bee: CEDEPLAR/UFMG
Juan Pablo Gama: CEDEPLAR/UFMG

No 647, Textos para Discussão Cedeplar-UFMG from Cedeplar, Universidade Federal de Minas Gerais

Abstract: We propose a theoretical representation of how agents estimate demand through a market learning process. To this end, we model a traditional marketplace by interpreting Smith’s theory of the convergence of the market price to the natural price, understood as the reserve price. In this model, natural price is obtained through a bargaining process between consumers and producers. We use a repeated multi-period game with producers deciding their offers and both, consumers and producers, in an imperfect type of competition. Producers estimate the demand at the reserve price thanks to information provided by competition as rivalry between consumers and between producers. But the stronger this competition is, the slower the discovery process.

Keywords: Demand discovery; natural price; rivalry; imperfect competition (search for similar items in EconPapers)
JEL-codes: B12 C72 C73 D43 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2022-09
New Economics Papers: this item is included in nep-com and nep-gth
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