Agent-based models and industrial organization theory. A price-competition algorithm for agent-based models based on Game Theory
Authored by Sanchez-Cartas Juan Manuel
Date Published: 2018
DOI: 10.1186/s40294-018-0053-7
Sponsors:
No sponsors listed
Platforms:
NetLogo
Model Documentation:
Other Narrative
Flow charts
Pseudocode
Mathematical description
Model Code URLs:
https://goo.gl/WnfPhk
https://goo.gl/XSV97N
https://goo.gl/RDwsDD
Abstract
Purpose: Simulating markets using agent-based models must consider
pricing. However, the strategic nature of prices limits the development
of agent-based models with endogenous price competition.
Methods: I propose an agent-based algorithm based on Game Theory that
allows us to simulate the pricing in different markets. I test the
algorithm in five theoretical economic models from the industrial
organization literature.
Results: In all cases, the algorithm is capable of simulating the
optimal pricing of those markets. It is also tested in two more cases:
one in which the original work fails to predict the optimal outcome, and
another one that is quite complex to solve analytically. Lastly, I
present two potential extensions of this algorithm: one dynamic, and
another one based on quantity competition.
Conclusions: This algorithm opens the door to the extensive inclusion of
pricing in agent-based models, but also, it helps to establish a link
between the industrial organization literature and the agent-based
modeling.
Tags
Agent-based models
industrial organization
information
Algorithmic game theory
Price optimization
Entry