How do firms transition between monopoly and competitive behavior?
An Agent-based Economic Model
Michael de la Maza, Ayla Ogus, and Deniz Yuret (1998)
How do firms transition between monopoly and competitive behavior? An
Agent-based Economic Model. In Proceedings of the Sixth
International Conference on Artificial Life, 349 - 357.
Artificial life has long held out the promise of revolutionizing how
scientists approach a variety of problems. In this paper we describe
an application of artificial life techniques to the study of a
fundamental problem in economics: How does a firm transition from
monopoly behavior to competitive behavior as other firms enter the
market? Solving traditional economic models provides the equilibrium,
but does not give the path to equilibrium.The firms in our artificial
life simulation do not have access to any global information about the
market. The resulting global behavior that arises from this local
price-setting behavior is the equilibrium predicted by the traditional
analytical models. Hence, our simulation provides a proof by example
that simple, local rules of interaction can create the global
regularities observed and predicted by economists, thus providing a
relatively low upper bound on how complex firm agents must be to reach
equilibrium. In this paper we describe the various agents in the
model-firms, consumers, capital suppliers, labor suppliers-and present
the outcome of several simulations of the model.