Improving enterprise performance using agent based modelling and simulation system driven price optimization

Abstract

The general observation is that price reduction by one firm in a duopoly situation will cause switch-over of price-sensitive customers from the other firm and this may lead to increased profits for the firm which reduces the price. A simulation study consisting of two electric car manufacturers with agent based modelling was done to verify this contention. The baseline was first defined. Simulations of 1000 times and agent-based modelling was done in which company 1 was assumed to reduce its price to the maximum of 20% leading to switch-over of a maximum of 40% of the customers of company 2, who were price-sensitive. The results of 1000 simulations and agent-based modelling showed that price reduction by company 1 increased its customers significantly, presumably due to switch-over from company 2 and there were significant increase in revenues from two of the sales avenues. This study has implications for companies looking to sway the price sensate customers from a competitor.