Agent-based Simulation of Entry and Exit of Production Firms in Supplier-Dominated Industries

Subject Areas : Labor and Demographic Economics

Zahra Asadollahi Sohi ¹ , Hossein Raghfar ²

1 - Department of economics,, Alzahra University,, Tehran,, Iran.
2 - Professor of Economics, Department of Economics, Faculty of Social Science and Economics, Alzahra University, Tehran, Iran

Accepted : 0621-03-23 Published : 2021-12-12

Keywords: Number of Firms, . Agent-Based Modeling. Industry Entry and Exit. Supplier-Dominated Industries. Simulation Experiments, JEL Classification: C63, D22, L14,

Abstract :

This article explores how different factors influence the number and dynamics of firms in supplier-dominated industries. These industries are typically traditional, small, and depend on external suppliers for innovation. The article uses a hybrid simulation of system dynamics and agent-based modeling to capture the realistic assumptions that firms do not have complete market information and make decisions based on simple heuristics and past and current conditions. The article conducts experiments to examine how initial conditions, machine life, economic parameters, producer optimism, production growth rate, and demand elasticity affect the entry and exit patterns and the number of firms in the industry. The article uses variables such as the time to reach the peak number of firms, the number of firms at the peak, and the number of firms at the end of the simulation period to represent the shape of the industry distribution. The experiments show that the initial number of firms, demand elasticity, machine life, and financial resources have the most significant effects on the distribution shape, while other factors such as economic growth also have some nonlinear effects.

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