Modeling the strategic behavior of producers in a local agricultural market with bounded demand

A.O. Gurtuev, O.L. Boziev

Abstract. We consider the problem of modeling local markets with limited demand, for which the existence and characteristics of a stable market equilibrium depends on the institutional structure of the market and strategic decisions of producers. Such type of markets can be observed in agricultural regions of many countries, including Russia (in particular, they are common in the republics of the North Caucasus). The main factors of inefficiency in such systems are restrictively high transaction costs of moving into the regional market, budget constraints and imperfect information. This leads to the fact that due to the lack of effective market mechanisms for coordinating production plans, seasonal overproduction of individual crops occurs. In this regard, the problem of developing an effective and sustainable mechanism for coordinating strategic decisions between independent producers under conditions of uncertainty and imperfect information arises. The paper describes the features of such market systems, highlights their specific differences from markets with perfect competition, and proposes a formulation of the problem of mathematical modeling that allows formally describing the interaction of economic entities in such a market.

Keywords: local market, limited demand, cooperative games, market equilibrium, agricultural production, strategic interaction, uncertainty

For citation. Gurtuev A.O., Boziev O.L. Modeling the strategic behavior of producers in a local agricultural market with bounded demand. News of the Kabardino-Balkarian Scientific Center of RAS. 2024. Vol. 26. No. 6. Pp. 280–290. DOI: 10.35330/1991-6639-2024-26-6-280-290