How market structure drives commodity prices

Authored by Bin Li, K Y Michael Wong, Amos H M Chan, Tsz Yan So, Hermanni Heimonen, Junyi Wei, David Saad

Date Published: 2017

DOI: 10.1088/1742-5468/aa933a

Sponsors: Research Grants Council of Hong Kong

Platforms: No platforms listed

Model Documentation: Other Narrative Mathematical description

Model Code URLs: Model code not found

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.

Tags

Agent-based models models of financial markets networks Economics socio-economic networks Graphical games