February 07, 2018
The Effect of Loyalty in the Kirman and Vriend (2001) Fish Market Model
Dávid Kopányi, Universiteit van Amsterdam
(Joint work with Alex Possajennikov)
In this paper we analyze the Kirman and Vriend (2001) fish market model in detail. We investigate the robustness of the results by simulating the model 100 times and we open up the "black box'' by studying the role of loyalty considerations in the sellers' different decision rules. We confirm that the qualitative findings of the original paper are robust: morning prices converge, there is price dispersion and loyalty emerges. However, our results show that buyers become loyal even though sellers treat more loyal buyers negatively. We find that price discrimination based on loyalty levels is favorable for buyers as the price level is lower than without price discrimination but it provides lower incentives to become loyal. Loyalty considerations in queue handling also hinder the emergence of loyalty as more loyal buyers are served typically later. Thus, buyers have more incentive to become loyal when sellers do not take loyalty considerations into account in their decisions. Moreover, the sellers' revenues and profits are also the highest in this case. Thus, sellers do not learn the optimal way to treat buyers from a profit-maximizing point-of-view.