A Model of Price Dispersion and Loyalty Alan P. Kirman, European University Institute, Florence Nicolaas J. Vriend, Santa Fe Institute Abstract. We try to understand the behavior of buyers and sellers on the Marseille whole-sale fish market. Two of the stylized facts of that market are high loyalty of buyers to sellers, and persistent price dispersion, although the same population of sellers and buyers meets in the same market hall on every day. We build a minimal model of adaptive agents.
Sellers decide on quantities to supply, prices to ask, and how to treat loyal customers.
Buyers decide which seller to visit, and which prices to accept. Learning takes place through reinforcement. We observe the emergence of both stylized facts price dispersion and high loyalty. In a coevolutionary process, buyers learn to become loyal because sellers learn to offer higher utility to loyal buyers, while these sellers, in turn, learn to offer higher utility to loyal buyers because they happen to realize higher gross revenues from loyal buyers.