Price and niche wars in a free-market economy of software agents

One scenario of the future of computation populates the Internet with vast numbers of software agents providing, trading, and using a rich variety of information goods and services in an open, free-market economy. An essential task in such an economy is the retailing or brokering of information: gathering it from the right producers and distributing it to the right consumers. This article investigates one crucial aspect of brokers' dynamical behavior, their price-setting mechanisms, in the context of a simple information-filtering economy. We consider only the simplest cases in which a broker sets its price and product parameters based solely on the system's current state, without explicit prediction of the future. Analytical and numerical results show that the system's dynamical behavior in such "myopic" cases is generally an unending cycle of disastrous competitive "wars" in price/product space. These in turn are directly attributable to the existence of multiple peaks in the brokers' profitability landscapes, a feature whose generality is likely to extend far beyond our model. © 1998 Massachusetts Institute of Technology.