Journal of Evolutionary Economics

, Volume 22, Issue 1, pp 161–201 | Cite as

Markets as communication systems

Simulating and assessing the performance of market networks
  • Franck Galtier
  • François Bousquet
  • Martine Antona
  • Pierre Bommel
Regular Article


As the information relative to endowments, costs and preferences is dispersed among many agents, the quality of resource allocation depends on the ability of markets to communicate information inside the economic system. Because information is transferred through negotiation and transaction behaviors, the network of trading relations defines the channels through which it flows. In the present study, we use new computational tools to analyze the performance of two wholesale trade institutions widely used around the world: network trading and marketplace trading. Whilst network trading and marketplace trading disseminate far fewer bits of information than a perfectly transparent benchmark market, they often manage to generate an allocation of resources that is almost as good. In many cases, network trading proves more effective than marketplace trading (contrary to a common preconception). This surprising performance of network trading is linked to a form of indirect arbitrage induced by connections between networks. Implications for market design and public policy making are presented, along with prospects for further research.


Market design Market process Informational efficiency Agent-based computational economics Multi-agent system Decentralized market 

JEL Classification

C63 D82 D83 D85 L1 Q13 



We thank Alan Kirman for valuable comments on an earlier draft and the two referees of the review for very interesting comments and suggestions.


  1. Amselle J-L (1977) Les commerçants de la savane: histoire et organisation sociale des Kooroko (Mali). Anthropos, ParisGoogle Scholar
  2. Aoki M (1986) Horizontal vs vertical information structure of the firm. Am Econ Rev 76:971–983Google Scholar
  3. Balzer W, Brendel K, Hofmann S (2001) Bad arguments in the comparison of game theory and simulation in social science. JASSS 4(2). Available online at
  4. Birner J (1999) Making markets. In: Dow S, Earl PE (eds) Economic organization and economic knowledge. Edward Elgar, Cheltenham, pp 36–56Google Scholar
  5. Bloch F, Genicot G, Ray D (2008) Informal insurance in social networks. J Econ Theory 143:36–58CrossRefGoogle Scholar
  6. Bousquet F, Bakam I, Proton H, Lepage C (1998) Cormas: common-pool resources and multi-agent systems. Lect Notes Comput Sci 1416:826–837CrossRefGoogle Scholar
  7. Bramoullé Y, Kranton R (2007) Risk-sharing networks. J Econ Behav Organ 64:275–294CrossRefGoogle Scholar
  8. Brenner T (1997) Learning at the market place. In: Second international conference on computing in economics and finance. Geneva, Switzerland, 26–28 June 1996Google Scholar
  9. Corominas-Bosch M (2004) Bargaining in a network of buyers and sellers. J Econ Theory 115:35–77CrossRefGoogle Scholar
  10. Dembélé N, Staatz J (1989) Transparence des marchés céréaliers et rôle de l’état: la mise en place d’un système d’information des marchés au Mali. European Association of Agricultural Economists Seminar, Montpellier, FranceGoogle Scholar
  11. Durlauf S (1994) Bilateral interactions and aggregate fluctuations. In: Lakshmikantham V (ed) Proceedings of the first world congress of nonlinear analysts, vol III. Walter DeGruyter, 1996Google Scholar
  12. Egg J, Galtier F, Grégoire E (1996) Systèmes d’information formels et informels: la régulation des marchés céréaliers au Sahel. Cah Sci Hum 32(4):845–868Google Scholar
  13. Evstigneev I, Taksar M (2008) Dynamic interaction models of economic equilibrium. J Econ Dyn Control 33:166–182CrossRefGoogle Scholar
  14. Fafchamps M, Minten B (2001) Social capital and agricultural trade. Am J Agric Econ 83(3):630–685CrossRefGoogle Scholar
  15. Feldman A (1973) Bilateral trading processes, pairwise optimality and Pareto optimality. Rev Econ Stud 40:463–479CrossRefGoogle Scholar
  16. Föllmer H (1974) Random economics with many interacting agents. J Math Econ 1:51–62CrossRefGoogle Scholar
  17. Galtier F (2002a) Information, institutions et efficacité des marchés. Trois filières céréalières d’Afrique de l’Ouest analysées comme des systèmes de communication. PhD, ENSA.M, Montpellier, FranceGoogle Scholar
  18. Galtier F (2002b) Eclatement et incomplétude de la théorie des marchés. Econ Soc 36(9–10):1655–1671Google Scholar
  19. Galtier F, Egg J (2003) Le “paradoxe” des systèmes d’information de marché (SIM): une clef de lecture issue de l’économie institutionnelle et de la théorie de la communication. Econ Soc 37(7–8):1227–1260Google Scholar
  20. Granovetter M (1985) Economic action and social structure: the problem of embeddedness. Am J Sociol 91:481–510CrossRefGoogle Scholar
  21. Granovetter M (1994) Les institutions économiques comme constructions sociales: un cadre d’analyse. In: Orléan A (ed) Analyse économique des conventions. Presses Universitaires de France, ParisGoogle Scholar
  22. Grégoire E (1986) Les Alahzaïs de Maradi: histoire d’un groupe de riches commerçants sahéliens. Editions de l’ORSTOM, ParisGoogle Scholar
  23. Greif A (1989) Reputation and economic institutions in medieval trade: evidences from the Geniza documents. J Econ HistGoogle Scholar
  24. Greif A (1993) Contract enforceability and economic institutions in early trade: the Maghribi traders coalition. Am Econ Rev 83(3):525–548Google Scholar
  25. Grossman S (1989) The informational role of prices. MIT Press, CambridgeGoogle Scholar
  26. Grossman S, Stiglitz J (1976) Information and competitive price systems. Am Econ Rev 66:246–253Google Scholar
  27. Grossman S, Stiglitz J (1980) On the impossibility of informationally efficient markets. Am Econ Rev 70(3):393–408Google Scholar
  28. Hamadou S (1997) Libéralisation du commerce des produits vivriers au Niger et mode d’organisation des commerçants privés: les réseaux marchands dans le fonctionnement du système de commercialisation des céréales. PhD, ENSAM, Montpellier, FranceGoogle Scholar
  29. Hardle W, Kirman A (1995) Nonclassical demand. A model-free examination of price-quantity relations in the Marseille fish market. J Econom 67:227–257CrossRefGoogle Scholar
  30. Hayek F (1937) Economics and knowledge. Economica 4:33–54CrossRefGoogle Scholar
  31. Hayek F (1945) The use of knowledge in society. Am Econ Rev 35(4):519–530Google Scholar
  32. Hayek F (1948) The meaning of competition. In: Hayek F (ed) Individualism and economic order. The University of Chicago Press, ChicagoGoogle Scholar
  33. Hoff K, Braverman A, Stiglitz J (1993) The economics of rural organization. Oxford University Press for the World Bank, New YorkGoogle Scholar
  34. Hurwicz L (1969) Centralization and decentralization in economic systems. On the concept and possibility of informational decentralization. Am Econ Rev 59:513–524Google Scholar
  35. Ioannides Y (1975) Market allocation through search: equilibrium adjustment and price dispersion. J Econ Theory 11(2):247–262CrossRefGoogle Scholar
  36. Ioannides Y (1990) Trading uncertainty and market form. International Economic Review 31(3):619–638CrossRefGoogle Scholar
  37. Ioannides Y (1997) The evolution of trading structures. In: Arthur B, Durlauf S, Lane D (eds) The Economy as an evolving complex system II. SFI studies in the sciences of complexity. Addison-Wesley, ReadingGoogle Scholar
  38. Jackson M (2003) The stability and efficiency of economic and social networks. In: Sertel M, Koray S (eds) Advances in economic design. Springer, New YorkGoogle Scholar
  39. Jovanovic B (1987) Micro shocks and aggregate risk. Q J Econ 102(2):395–410CrossRefGoogle Scholar
  40. Kirman A (1987) Graph theory. In: Eatwell J, Milgate M, Newman P (eds) The New Palgrave: a dictionary of economics, vol 1. Mc Millan, London, pp 190–195Google Scholar
  41. Kirman A (1997) The economy as an evolving network. J Evol Econ 7:339–353CrossRefGoogle Scholar
  42. Kirman A, Vriend N (2000) Evolving market structure: an ACE model of price dispersion and loyalty. J Econ Dyn Control 25(3–4):459–502Google Scholar
  43. Kirman A, Schulz R, Hardle W, Werwatz A (2005) Transactions that did not happen and their influence on prices. J Econ Behav Organ 56(4):567–591CrossRefGoogle Scholar
  44. Kirzner I (1992) The meaning of market process—essays in the development of modern Austrian economics. Routledge, LondonCrossRefGoogle Scholar
  45. Kirzner I (1997) Entrepreneurial discovery and the competitive market process: an Austrian approach. J Econ Lit 35:60–85Google Scholar
  46. Kranton R, Minehart F (2001) A theory of buyer–seller networks. Am Econ Rev 91(3):485–508CrossRefGoogle Scholar
  47. Kuiper E, Lutz C, Van Tilburg A (2003) Vertical price leadership on local maize markets in Benin. J Dev Econ 71:417–433CrossRefGoogle Scholar
  48. Lambert A, Egg J (1994) Commerce, réseaux et marchés: l’approvisionnement en riz dans les pays de l’espace sénégambien. Cah Sci Hum 30:229–254Google Scholar
  49. Milgrom P, North D, Weinsgast B (1990) The role of institutions in the revival of trade: the Law merchant, private judges and the champagne fairs. Econ Polit 2(19):1–23CrossRefGoogle Scholar
  50. Ozsoylev H (2005) Asset pricing implications of social networks. AFA 2006 Boston meetings paper. Available at SSRN:
  51. Potts J (2001) Knowledge and markets. J Evol Econ 11(4):413–431CrossRefGoogle Scholar
  52. Radner R (1968) Competitive equilibrium under uncertainty. Econometrica 36:31–58CrossRefGoogle Scholar
  53. Radner R (1972) Existence of equilibrium plans, prices and price expectations in a sequence of markets. Econometrica 40:289–303CrossRefGoogle Scholar
  54. Roth A (2001) The economist as engineer: game theory, experimentation, and computation as tools for design economics. Econometrica 70(4):1341–1378CrossRefGoogle Scholar
  55. Roth A, Peranson E (1999) The redesign of the matching market for American physicians: some engineering aspects of economic design. Am Econ Rev 89:748–780CrossRefGoogle Scholar
  56. Roth A, Xing X (1997) Turnaround time and bottlenecks in market clearing: decentralized matching in the market for clinical psychologists. J Polit Econ 105:284–329CrossRefGoogle Scholar
  57. Schnabl H (1996) A close eye on the invisible hand. J Evol Econ 6(3):261–280CrossRefGoogle Scholar
  58. Smith V (1982) Markets as economizers of information: experimental examination of the “Hayek hypothesis”. Econ Inq 20:165–179CrossRefGoogle Scholar
  59. Smith V, Williams A, Bratton K, Vannoni M (1982) Competitive market institutions: double auction versus bid-offer auctions. Am Econ Rev 72:58–77Google Scholar
  60. Thomsen E (1992) Prices and knowledge—a market-process perspective. Routledge, LondonCrossRefGoogle Scholar
  61. Weisbuch G, Kirman A, Herreiner D (2000) Market organisation and trading relationships. Econ J 110(463):411–436CrossRefGoogle Scholar
  62. Williamson O (1985) The economic institutions of capitalism. The Free Press, Mac Millan, New YorkGoogle Scholar

Copyright information

© Springer-Verlag 2011

Authors and Affiliations

  • Franck Galtier
    • 1
  • François Bousquet
    • 2
  • Martine Antona
    • 2
  • Pierre Bommel
    • 3
  1. 1.UMR MOISACIRADMontpellier Cedex 5France
  2. 2.UPR GREENCIRADMontpellier Cedex 5France
  3. 3.UPR GREENCIRAD & UnB Faculdade de tecnologiaBrasiliaBrazil

Personalised recommendations