Olivier Boissier, Amal El Fallah-Seghrouchni, Salima Hassas, Nicolas Maudet
A significant challenge for firms in an open-competition marketplace is to balance the conflicting attributes ofprice and quality. Higher quality levels tend to lead to increasedproduct costs, which, depending on market preferences, cantrigger an increase in consumer demand. This paper presents amulti-agent model that allows for an exploration of how price andquality evolve as a result of direct market competition betweenfirms. A new competition model, based on price and quality, isdefined. Agents compete by determining their price and qualitylevels with a view to maximizing their profit. Our goal is toexamine a range of market configurations and study how agentstrategies evolve over time. We focus on those factors whichcontribute to each agentís survival in this evolutionary setting.We use game theoretic simulation as a basis to examine variousagent strategies. A genetic algorithm is used to characterize achanging environment which evolves over time to reflect theemergence of fitter strategy attributes. Individuals can evolvetheir own market preferences over subsequent generations andadapt to their preferred market strategy. Agent strategies evolverapidly to reflect the bias of their individual market. The priceand quality relationship of a given market is a primary driverof the evolution of agent strategies in that market. Significantly,our results show the emergence of strategies that prefer lowprice and high quality sensitive markets. This is despite thepenalties which are incurred by the higher costs of increasedquality. These results have potentially interesting applications toreal-world market dynamics, particularly as companies strive toposition their products optimally on different markets.