Market Networks: An Electrical Analog

An analogy can be drawn between electrical networks and certain systems of spatially separated markets for a given commodity. This allows the application of electrical network theory to the dynamic analysis of those marketing systems. Linear equivalent circuits model the behavior of the producers, consumers, and shippers. The resulting market network allows one to compute the incremental variations of the prices and commodity flows around their static equilibrium values resulting from disturbances in supply or demand or changes in value-added taxes, sales taxes, or tariffs. Also, qualitative conclusions can be drawn from the facts that market networks are often passive and have a grounded topology. This leads to a variety of bounds on the transient responses, some of which are established in this paper. Finally, electrical analogs can be devised for systems of spatially separated markets devoted to trade in many different commodities. This is accomplished by using budget conditions and leads to ideal transformers that couple the individual market networks for the different commodities.