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Price-War Dynamics in a Free-Market Economy of Software Agents
Jeffrey O. Kephart, James E. Hanson and Jakka Sairamesh
Abstract:One scenario of the future of computation populates the Internet with vast numbers of software agents providing, trading, and using a rich variety of information goods and services in an open, essentially free-market economy. An essential task in such an economy is the retailing or brokering of information, whereby information is gathered from the right producers and distributed to the right consumers. This paper investigates one crucial aspect of brokers' dynamical behavior, their price-setting mechanisms, in the context of a simple information filtering economy. We consider only the simplest cases in which a broker sets its prices based solely on the system's current state, without reference to past history. Analysis of the best possible "zero-memory" method reveals that it causes disastrous price wars that hurt not only the brokers but also the consumers that they serve. In numerical experiments, a less ambitious (and less costly) method induced less frequent but more complex price-war instabilities that occurred after moderate to long periods of calm and prosperity.
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