An Inflation / Deflation Model for Price Stabilization in Networks

We consider a simple network model for economic agents where each can buy goods in the neighborhood. Their prices may be initially distinct in any node. However, by assuming some rules on new prices, we show that the distinct prices will reach an equilibrium price by iterating buy and sell operations. First, we present a protocol model in which each agent always bids at some rate in the difference between his own price and the lowest price in the neighborhood. Next, we show that the equilibrium price can be derived from the total funds and the total goods for any network. This confirms that the inflation / deflation occurs due to the increment / decrement of funds as long as the quantity of goods is constant. Finally, we consider how injected funds spread in a path network because sufficient funds of each agent drive him to buy goods. This is a monetary policy for deflation. A set of recurrences lead to the price of goods at each node at any time. Then, we compare two injections with half funds and single injection. It turns out the former is better than the latter from a fund-spreading point of view, and thus it has an application to a monetary policy and a strategic management based on the information of each agent.