Ex-Post Equilibrium Market Recommendations: Implications for Indian Agriculture

Abstract

Problem Definition: New business models can 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.

Methodology/Results: We describe a general model of decision-making in which sellers have some amount of a good that they wish to sell at one of several markets with elastic prices. We show that an (ex-post) equilibrium may not exist in this game, but such instances are exceedingly rare. We provide an algorithmic framework that a market planner can use to recommend ex-post equilibria to sellers (when one exists). Using both synthetic data and real data on India's agricultural markets, we show that the recommended equilibria typically outperform other natural strategies in terms of seller welfare, geographic price dispersion, and market volume concentration. We show that the framework is robust to imperfect market penetration: even when the system has imperfect predictions about the other sellers, the sellers that follow the recommendation typically capture almost over 99% of their anticipated welfare. We also show the framework is fair to smaller farmers and perform sensitivity analysis to understand which economies would most benefit from the framework.

Managerial Implications: Managers can supplement price information services with market recommendations with little overhead, leading to better market outcomes in terms of welfare, price dispersion and market concentration. As the recommendations lead to ex-post equilibria, sellers can verify their recommendation was a best-response to the rest of the market, making this framework applicable to economies with little trust.

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