An Intelligent Agent Simulation Model to Evaluate Herd Behavior and Sales Effort in a Duopoly Market

Abstract

This paper studies the impact of ‘herd behavior’ consumers in the market on demand of the products. In the duopoly market, two suppliers locate at two end of the line separately, providing an undifferentiated product. The potential consumers are dispersed along the line randomly. Beside those ‘rational’ consumers who have willing to buy from one of the two suppliers according to transportation cost from their positions to the two suppliers, other ‘herd behavior’ consumers may ignore the transportation cost, and change their mind to follow the most popular choice. To represent herd behavior of heterogeneous consumers, multi-agent based modeling and simulation is introduced to model and testify the operations of the market. Our numerical results show that ‘herd behavior’ consumers have a great influence on demand of two suppliers. Moreover, demand can be obviously increased once the first coming consumers are influenced by the supplier through sales efforts.