Abstract
Firms interact with each other in supplier–consumer relationships, creating a directed network where the nodes are firms and the edges are business relationships. Recent data on the interaction between firms have shown that this network structure presents a scale-free property. In this chapter, we study the influence of such a property on price dynamics. We formulate and simulate an economic model where firms interact with each other by providing intermediate goods and interact with consumers by providing final goods. Particularly, we study how different network structures influence the time-hazard function (probability of an t-period-old price being changed now) and the distribution of the size of price changes. We find that a network structure adds heterogeneity to the model, which helps to produce a decreasing hazard function and a more realistic distribution of price changes.
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Notes
- 1.
One exception is [16], who reported increasing hazard for some Japanese goods, using a finite mixture model.
- 2.
A spell starts and ends with a price change.
- 3.
The producers of raw materials used parameters (ε, λ, α) = (0. 5, 0. 9, 0. 05), while producers of intermediate goods used values (1. 0, 0. 1, 0. 1).
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Alonso, O., Deguchi, H. (2013). Firms’ Interaction in a Scale-Free Trade Network and Prices Dynamics. In: Murata, T., Terano, T., Takahashi, S. (eds) Agent-Based Approaches in Economic and Social Complex Systems VII. Agent-Based Social Systems, vol 10. Springer, Tokyo. https://doi.org/10.1007/978-4-431-54279-7_8
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