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Whenever you enter a town you will be presented with a menu of various options: from this menu you can trade directly with merchants as well as assess trade prices (see Trade) or jump to various locations in the town. You can also choose to go to these places on foot.
Every town has two dealers located somewhere along its streets. One sells armor while the other sells weapons and shields. They are usually located close together. Unlike the merchant, they can be accessed at any time.
The merchant is inside his shop and deals in Goods and Horses. His shop is locked after dark and does not open again until the morning. His shop bears a sign depicting a money bag. (Note that in newer versions there is a horse merchant.)
The tavern is the place to recruit men and hear a few tales. The patrons are random, so you may find one or more of the following:
Tavern patrons change almost every day, so check back every few days to see if anyone interesting has turned up.
The arena is a safe way of gaining combat experience and a bit of cash, and it's a good place to start learning how combat works. If you're feeling more adventurous you can also participate in the tournaments that take place in random towns every few days. The Tournament Master will willingly inform you where there are tournaments.
You can rest in a town you own for free. Your men will draw food from the town during this time.
Town prosperity relies on caravans. Ensure that caravans going to or from your town get there safely.
You can place or modify a garrison by choosing the "Station a garrison" option. You can also drop off or pick up prisoners. Companions can also be garrisoned. Garrisoned troops draw their food from the surrounding lands.
Men left in a town are paid only half wages as they are not on active duty, and their wages are automatically deducted (along with those of the men in your party) at the end of each week. If you place your entire party in a town's garrison and then wait until pay day you will end up giving all your men only half the wages they earn for active service.
Under certain conditions, a town that has just changed hands may declare that it is independent. Despite this the town will be granted to a vassal within a few days. You can still interact with the town normally during this time.
The "Manage this town" menu option lets you build several improvements to enhance your town's effectiveness. The cost and construction time will be decreased if you or your companions have points in Engineer.