The Market Economy as a Self-Organizing System. An Agent Based Theory

A central difficulty in economic theory is to connect existence claims about competitive equilibrium with an account of the actual decentralized processes through which quantities and allocations become mutually consistent in real time. General equilibrium analysis clarifies what joint consistency requires, but it often leaves the coordinating mechanism implicit. This paper takes a constructive approach: it builds a large-scale agent-based economy in which all trading interactions are explicit, expectations are disciplined by observable histories rather than by rational-expectations shortcuts, and long-run regularities emerge from micro behavior rather than from auxiliary equilibrium operators. The agent-based system incorporates several novel features: competition-based pricing from the marketing literature, network-based search behavior that generates endogenous gravitational effects, household behavioral buffer-stock budgeting, a communication protocol between agents, and a competitive banking sector in which an investor governs firm entry through a Sharpe-type profitability signal. The paper argues that competition-based pricing can be viewed as an instance of a social mechanism termed copy–deviate behavior: satisfied agents imitate one another—supporting coordination toward an equilibrium—whereas dissatisfied agents deviate from prevailing practice—thereby generating potential movement toward a new equilibrium.

The economy comprises heterogeneous overlapping-generations households and heterogeneous firms with S-shaped technologies. Monte Carlo simulations show the economy tracking a balanced growth path. Two supply-side experiments confirm self-organizing dynamics: a permanent productivity increase raises output and real wages proportionally, while random firm destruction triggers re-entry that restores firm counts within years.