Validating Business Simulations: Do Simulations Exhibit Natural Market Structures?

Abstract

Studies of the size distributions of business firms to assist in the understanding of market structures have been undertaken for a number of years. The leading such study, undertaken by Buzzell (1981) as part of the ongoing stream of research reported on as part of the PIMS project, indicated that the market share size distributions of business firms within an industry followed a skewed distribution and firms had a size ratio, on average, of 0.6 relative to their next largest competitor. A major concern of simulation game users through the years has been how realistic are business simulation games and this has lead to numerous validation studies of business simulations. The market share size distributions of 509 different simulation companies competing within three different industry competitive structures (6, 9 and 12 firm competitions) within a business simulation game were examined to test conformity within this simulation environment to the real world findings as reported from the PIMS data. It was found that competitive structures within the business simulation industries exhibited a skewed market share distribution and exhibited a consistent size ratio as suggested by the PIMS findings. A notable difference was that the size ratios in the simulation were at the higher range as compared to real world industries (in the range of .90). It was also found that the size ratios increased modestly as the number of industry competitors increased.