Market equilibrium in negotiations and growth models

Kryazhimskiy, A.V. (2010). Market equilibrium in negotiations and growth models. Keynote Lecture, Fourth International Conference on "Game Theory and Management", 28-30 June 2010, St. Petersburg, Russia

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Abstract

The notion of the market equilibrium has been used in research on emission reduction games. An underlying phenomenon is the lack of well-established currency in the market of emission reductions; the market operation requires therefore special "rules of the game", acceptable for all market players. One of the possible "rules of the game" suggests bilateral agreements on the rates of emission exchange. A set of bilateral emission exchange rates is understood as the market equilibrium if each player's emission reduction exchanged to the emission reductions of all the other players maximizes the player's utility under that set of exchange rates. Finding the market equilibrium without revealing the individual utilities can constitute the goal of various multi-round negotiation processes.

In this talk, a brief outline of emission reduction games will be followed by a presentation of a dynamic game of interacting economic agents. The model suggests that each agent produces a unique good vital for the other agents. In that group of "monopolists" a market price formation mechanism can hardly emerge; the economic development is driven by bilateral rates of exchange in goods. The notion of the market equilibrium is used to define the growth dynamics acceptable for all the agents. The market equilibrium is formed as a set of time-varying bilateral exchange rates that allow each agent to produce his/her good via maximizing his/her individual integrated utility in response to the good offers from the other agents. In the talk, an illustrative example will be provided, and robustness properties of the market equilibrium will be discussed.

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