An Analysis of the Interaction of Firm Demand and Industry Demand in Business Simulations

Abstract

Demand algorithms in business simulations involve two basic demand curves: (1) a firm demand curve and (2) an industry demand curve. No papers were found that rigorously investigated different configurations for firm demand and industry demand curves. Four experiments were conducted using a simple demand algorithm based on assumed linear relationships for firm and industry demand. In the experiments different Y intercepts and slope of lines were assumed. The results demonstrated that the relationship of the elasticity of demand is critically important and that the slope of the firm demand curves is irrelevant to allocating industry demand as long as the values of the Y intercepts are not changed.