Emergence of Cooperative Long-Term Market Loyalty in Double Auction Markets

PLoS One. 2016 Apr 27;11(4):e0154606. doi: 10.1371/journal.pone.0154606. eCollection 2016.

Abstract

Loyal buyer-seller relationships can arise by design, e.g. when a seller tailors a product to a specific market niche to accomplish the best possible returns, and buyers respond to the dedicated efforts the seller makes to meet their needs. We ask whether it is possible, instead, for loyalty to arise spontaneously, and in particular as a consequence of repeated interaction and co-adaptation among the agents in a market. We devise a stylized model of double auction markets and adaptive traders that incorporates these features. Traders choose where to trade (which market) and how to trade (to buy or to sell) based on their previous experience. We find that when the typical scale of market returns (or, at fixed scale of returns, the intensity of choice) become higher than some threshold, the preferred state of the system is segregated: both buyers and sellers are segmented into subgroups that are persistently loyal to one market over another. We characterize the segregated state analytically in the limit of large markets: it is stabilized by some agents acting cooperatively to enable trade, and provides higher rewards than its unsegregated counterpart both for individual traders and the population as a whole.

Publication types

  • Research Support, Non-U.S. Gov't

MeSH terms

  • Commerce*
  • Humans
  • Interpersonal Relations*
  • Models, Theoretical*

Grants and funding

We acknowledge funding by the Engineering and Physical Sciences Council EPSRC 896 (UK), grant reference EP/K000632/1 (Network Plus, Towards consensus on a unifying 897 treatment of emergence and systems far from equilibrium). PS acknowledges the 898 stimulating research environment provided by the EPSRC Centre for Doctoral Training 899 in Cross-Disciplinary Approaches to Non-Equilibrium Systems (CANES, 900 EP/L015854/1). The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript.