A Model of the Market Process with Numerical Simulation

Abstract

The paper simulates the price-arbitrage process at the market for homogeneous good and tries to show the convergence into a single price from different cross-linked markets of this homogeneous good. It examines the problem by random generation of values in the simulation environment offered by the Matlab program. It is emphasized here the approach in which the agent’s alertness is crucial to the market. The emphasis is not on the price that equilibrates supply and demand, since there is not a single price for a homogeneous commodity. A homogeneous good is negotiated with different prices in different parts of a market. The paper explains the process in which the agent’s alertness leads to a uniform price in terms of a simulation model, in the belief that that technique leads to a better understanding of the precise nature of the market process and the agent’s alertness role in equilibration. The paper also discusses the effects of the heterogeneous agents and market barriers in the market convergence process. The innovative feature of the paper is the simulation experiment.