How market structure drives commodity prices. (29th November 2017)

• Record Type: Journal Article
• Authors: Li, Bin; Michael Wong, K Y; Chan, Amos H M; So, Tsz Yan; Heimonen, Hermanni; Wei, Junyi; Saad, David
• Is Part Of: Journal of statistical mechanics. (2017:Nov.)
• Publication Date: 2017-11-29
• Subjects: 16 -- 12; Statistical mechanics -- Periodicals; Mechanics -- Statistical methods -- Periodicals; 530.1305
• DOI: 10.1088/1742-5468/aa933a
• Languages: English
• ISSNs: 1742-5468

Abstract

Abstract: We introduce an agent-based model, in which agents set their prices to maximize profit. At steady state the market self-organizes into three groups: excess producers, consumers and balanced agents, with prices determined by their own resource level and a couple of macroscopic parameters that emerge naturally from the analysis, akin to mean-field parameters in statistical mechanics. When resources are scarce prices rise sharply below a turning point that marks the disappearance of excess producers. To compare the model with real empirical data, we study the relationship between commodity prices and stock-to-use ratios in a range of commodities such as agricultural products and metals. By introducing an elasticity parameter to mitigate noise and long-term changes in commodities data, we confirm the trend of rising prices, provide evidence for turning points, and indicate yield points for less essential commodities.