Abstract
In the remaining two chapters, we investigate the time evolution of the market structure in terms of market share dynamics, by employing agent-based models (ABMs) with boundedly rational firms and consumers interacting with each other. The common basic feature of boundedly rational firms is that since they do not know the shape of their demand functions they face, they adaptively revise production levels and prices so as to raise their profits based on the reaction by consumers. The main difference lies in consumers’ behavior.
The most beautiful experience we can have is the mysterious. It is the fundamental emotion that stands at the cradle of true art and true science. Whoever does not know it and can no longer wonder, no longer marvel, is as good as dead, and his eyes are dimmed.
Albert Einstein The World As I See It (1934)
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Notes
- 1.
The content of this chapter is mainly based upon Onozaki and Yanagita (2003).
- 2.
For this reason, Walras had to rely on a bizarre idea of tâtonnement with an auctioneer to explain the determination of prices in a perfectly competitive market.
- 3.
The same reformation is carried out by Iwai (1981) and Tuinstra (2001), the purpose of which, unlike ours, is to explain how prices are determined in a decentralized competitive market.
- 4.
To be more precise, in our settings, it is even impossible to describe explicitly the individual demand function faced by each firm because, as explained later, demand for a firm depends not only on its price but also on the prices of all other firms and consumers’ habitual behavior.
- 5.
Hill climbing is a mathematical optimization technique, which is an iterative algorithm that aims to find the best solution in the neighborhood of the present solution.
- 6.
The following graphs are made by using \(5 \times 10^{3}\) of the simulation data points selected at 100 time-point intervals from the total \(5 \times 10^{5}\) data points.
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Onozaki, T. (2018). Agent-Based Model of Market Structure Dynamics I. In: Nonlinearity, Bounded Rationality, and Heterogeneity. Springer, Tokyo. https://doi.org/10.1007/978-4-431-54971-0_6
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DOI: https://doi.org/10.1007/978-4-431-54971-0_6
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Publisher Name: Springer, Tokyo
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Online ISBN: 978-4-431-54971-0
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