Market-making model predicts pricing strategies and impacts consumer choices.
The article explores how different firms set prices in a market with various types of buyers and sellers. In this model, firms, consumers, and suppliers all search for the best prices, taking into account future profits. The study finds that there is a specific pricing strategy that all firms follow. When the discount rate is low, prices and output align with a standard market equilibrium. However, when the discount rate is high, prices resemble those of a monopoly. A higher discount rate leads to more firms in the market, higher profits per firm, and wider price ranges. The model also looks at how the market changes over time as new consumers and suppliers enter and exit.