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The Impact of Communication Costs and Limitations on Price Wars in an Information Economy

By Jianhui Wu and Edmund H. Durfee


Price wars—the iterative undercutting of prices to the marginal cost by competitors—have frequently emerged in models of economic systems populated by computational agents. In this paper, we explore the prevalence and severity of price wars in models of multiagent ecommerce systems that include costs and limitations on interagent communication. The empirical results we describe in this paper indicate that, for a stationary consumer population, limiting the rate of penetration of price information can reduce the severity of price wars, and that charging producer agents for communication can in fact curtail priceundercutting before prices (and profits) bottom out. Furthermore, prices (and profits) do not bottom out for non-stationary consumer populations, where in fact cyclic price wars can arise. 1

Year: 2013
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