CiteWeb id: 20150000115

CiteWeb score: 1351

DOI: 10.1086/227495

Production markets have two sides: producers are a fully connected clique transacting with buyers as a separate but aggregated clique. Each producer is a distinctive firm with a distinctive product. Each side continually minotors reactions of the other through the medium of a joint social construction, the schedule of terms of trade. Each producer is guided in choice of volume by the tangible outcomes of other producers-not by speculation on hypothetical reactions of buyers to its actions. Each producer acts purely on self-interest based on observed actions of all others, summarized through a feedback process. The summary is the terms-of-trade schedule, which reduces to constant price only in limiting cases. The market emerges as a structure of roles with a differentiated niche for each firm. Explicit formulae-both for firms and for market aggregates-are obtained by comparative-statics methods for one family of assumptions about cost structures and about buyers' evaluations of differentiated products. Not...