The Strategic Exploitation of Limited Information and Opportunity in Networked Markets

Authors:
Dan Ladley;Seth Bullock
Affiliations:
Leeds University Business School, University of Leeds, Leeds, UK LS2 9JT;School of Electronics and Computer Science, University of Southampton, Southampton, UK SO17 1BJ
Venue:
Computational Economics
Year:
2008

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Abstract

This paper studies the effect of constraining interactions within a market. A model is analysed in which boundedly rational agents trade with and gather information from their neighbours within a trade network. It is demonstrated that a trader's ability to profit and to identify the equilibrium price is positively correlated with its degree of connectivity within the market. Where traders differ in their number of potential trading partners, well-connected traders are found to benefit from aggressive trading behaviour. Where information propagation is constrained by the topology of the trade network, connectedness affects the nature of the strategies employed.