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Market equilibrium computation (also called competitive equilibrium computation or clearing-prices computation) is a computational problem in the intersection of economics and computer science. The input to this problem is a market , consisting of a set of resources and a set of agents .
Equilibrium may also be economy-wide or general, as opposed to the partial equilibrium of a single market. Equilibrium can change if there is a change in demand or supply conditions. For example, an increase in supply will disrupt the equilibrium, leading to lower prices. Eventually, a new equilibrium will be attained in most markets.
It is named after the German economist Heinrich Freiherr von Stackelberg who published Marktform und Gleichgewicht [Market Structure and Equilibrium] in 1934, which described the model. In game theory terms, the players of this game are a leader and a follower and they compete on quantity. The Stackelberg leader is sometimes referred to as the ...
This lack of equilibrium arises from the firms competing in a market with substitute goods, where consumers favor the cheaper product due to identical preferences. Additionally, equilibrium is not achieved when firms set different prices; the higher-priced firm earns nothing, prompting it to lower prices to undercut the competitor.
A competitive equilibrium (CE) consists of two elements: A price function . It takes as argument a vector representing a bundle of commodities, and returns a positive real number that represents its price. Usually the price function is linear - it is represented as a vector of prices, a price for each commodity type.
Supply chain as connected supply and demand curves. In microeconomics, supply and demand is an economic model of price determination in a market.It postulates that, holding all else equal, the unit price for a particular good or other traded item in a perfectly competitive market, will vary until it settles at the market-clearing price, where the quantity demanded equals the quantity supplied ...
While some trades may result in a simple transfer of wealth from one party to another, the market as a whole is not purely competitive, and many transactions serve important economic functions. The stock market is an excellent example of a positive-sum game, often erroneously labelled as a zero-sum game. This is a zero-sum fallacy: the ...
This implies that the price one cent above MC is now an equilibrium: if the other firm sets the price one cent above MC, the other firm can undercut it and capture the whole market, but this will earn it no profit. It will prefer to share the market 50/50 with the other firm and earn strictly positive profits. [6] Product differentiation. If ...