Ex-Post Equilibrium Market Recommendations

53 Pages Posted: 20 Oct 2020 Last revised: 2 Jan 2024

See all articles by Chris Parker

Chris Parker

University of Virginia - Darden School of Business; American University - Kogod School of Business

Shai Vardi

Purdue University - Krannert School of Management

Date Written: January 1, 2024

Abstract

New business models help sellers make better decisions by communicating information about market prices. However, sellers' inability to coordinate greatly reduces the efficacy of this information and can lead to market failures. We study the feasibility and benefits of providing equilibria as recommendations in economies where sellers face price uncertainty, information scarcity, and an inability to coordinate.

We describe a general model in which sellers wish to sell some quantity of a good at one of several markets with elastic prices, and show that while an equilibrium may not necessarily exist, an approximate equilibrium always exists under mild assumptions on the market concentration. We describe an algorithm that a market planner can use to recommend approximate ex-post equilibria to sellers, and compare the recommended (approximate) equilibria to selling strategies identified from a survey of onion and potato farmers in India. Using both synthetic data and real data on India's agricultural markets, we show that the recommended strategy outperforms the other strategies in terms of seller welfare, geographic price dispersion, market volume concentration, and several metrics of individual farmer welfare improvements. We also show that the framework is robust to imperfect market penetration, is fair to smaller farmers, and captures nearly all of the welfare from a welfare-maximizing allocation.

Keywords: Service Operations; Empirical Research; Game Theory; OM-Information Technology Interface

Suggested Citation

Parker, Chris and Vardi, Shai, Ex-Post Equilibrium Market Recommendations (January 1, 2024). Available at SSRN: https://ssrn.com/abstract=3684720 or http://dx.doi.org/10.2139/ssrn.3684720

Chris Parker (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

American University - Kogod School of Business ( email )

4400 Massachusetts Avenue NW
Washington, DC 20816-8044
United States

Shai Vardi

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

HOME PAGE: http://www.shaivardi.com

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