Spatial competition and price formation

We look at price formation in a retail setting, that is, companies set pric es, and consumers either accept prices or go someplace else. In contrast to most other models in this context, we use a two-dimensional spatial struct ure for information transmission, that is, consumers can only learn from ne arest neighbors. Many aspects of this can he understood in terms of general ized evolutionary dynamics. In consequence, we first look at spatial compet ition and cluster formation without price. This leads to establishement siz e distributions, which we compare to reality. After some theoretical consid erations, which at least heuristically explain our simulation results, we f inally return to price formation, where we demonstrate that our simple mode l with nearly no organized planning or rationality on the part of any of th e agents indeed leads to an economically plausible price. (C) 2000 Elsevier Science B.V. All rights reserved.