Simulating pricing behaviours using a genetic algorithm
Retail petrol prices in Australia are monitored by the federal government which sets the base price for petrol that oil companies must follow. Even though current regulations prohibit the companies from colluding, some flexibility over the actual retail price of petrol is allowed. This paper examines the oligopolistic behaviour of the petrol sellers in the API (Australian Petroleum Industry) using game theory and a genetic algorithm (GA). Experiments based on the API retail marketplace interaction were conducted with particular consideration given to the API rebate system. The major oil companies may set their petrol price below a fixed target price, but if they do so, they must rebate their sellers with the difference. Initial results suggest that game theory concepts and GA's are suitable tools for studying the API. Further work related to this project includes incorporating more realistic constraints into the system, better representation of the data in the model as well as comparing the results with human experts.
Keywordsgenetic algorithm Iterated Prisoner's Dilemma petrol pricing
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