Multi-agent Model of Technological Shifts

Abstract

We present a multi-agent simulation model of a concentrated industry undergoing technological change. The simulation consists of heterogeneous firm agents, heterogeneous consumer agents, and one intermediating agent, the auctioneer, who aggregates market information to transmit to agents and to arrive at prices. Firms seek to maximize profit by estimating market demand, entering and exiting product markets, and optimizing output based on strategic conjectures of competing firm behavior. Consumers maximize utility by optimizing consumption within their budget sets. The auctioneer matches firm research with shifting consumer preferences, diffuses product knowledge among firms and consumers, and sets prices. We study . technological shifts; the diffusion of new technologies that directly compete with and replace existing ones. Sensitivity analysis is discussed in terms of the effects that model parameters have on product adoption, demand, output, spending, price, and profits. We validate our model against actual industry data on film cameras versus digital cameras.