Complex markets are markets whose growth and evolution are primarily driven by personal interactions among potential and current adopters. The personal interactions, typically word of mouth, imitation, and network effects, lie at the micro level of the system, while the aggregate results, typically adoption or sales, lie at the macro level. Agent based modeling including cellular automata and small-world are at the base of the micro-modeling.
A brief introduction can be found in the following presentation at the Doctoral Consortium of the Rotterdam Marketing Science Conference:
- Read our latest papers on saddles, viruses, social values, seeding, hubs and network externalities
Using agent-based modeling tools such as cellular automata or small-world, a "would-be world" can be created to uncover the simple interactions that can lead to what could be considered a complex behavior. The shared pattern of these phenomena is their non-linearity and their surprising outcomes, such as a sudden drop in the adoption rate followed by an unexpected recovery phase.
While analyses in our papers are typically based on a C++ programs, we found that agent based models can be built using Excel spreadsheets. These spreadsheets can stimulate intuition, and moreover, comprehensive analyses can be conducted using carefully constructed Excel spreadsheets.
Three examples of agent-based Excel models
Agent based models consist of three components:
- A graph representing individuals' behavior. In classical small- world models the world is usually drawn as a circle. In Excel spreadsheets would-be worlds are represented by matrices.
- Relationships among neighboring individuals, both strong and weak ties.
- Transition rules of the probabilities of adoption between periods.
Our research team:
Research interests: New products ideation; social networks, creativity in marketing; new product development; complexity in marketing
Research interests: Valuation of customer relationships; customer referral analysis; the evolution of markets for new products, social networks
Research interests: Word of mouth communications, rumors and urban legends, complexity in marketing, resistance to innovation
Eitan Muller - Interdisciplinary Center (IDC) and New York University
Research interests: Hi-Tech marketing, innovation diffusion and the evolution of markets for new products, social networks
Research interests: The evolution of markets for new products; industrial marketing, social networks
Research interests: Complexity of market dynamics, diffusion of innovation,
emergence of collective behavior in social systems, social networks
Agent-based market with externalities
1. The saddle phenomenon with agent based modeling
This Excel-based cellular automata program simulates a market with two
sub-markets: an early market of technophile adopters, and a main market
of functionality-seeking adopters. The dual-market phenomenon treats the
early market adopters and main market adopters as sufficiently different to warrant differential marketing treatment as two separate markets.
2. Network Externalities agent-based market
This Excel-based program simulates a market with network externalities - the utility of an adopter increases with the number of other adopters. What the model shows is the chilling effects of network externalities - that is - the diffusion and adoption of network products is slower.
3. Strong & weak ties agent based market
This Excel-based program exemplifies a market in which each individual communicates with all of his or her immediate neighbors. In addition, the entire market is divided into "communities", where the strength of the word-of-mouth activities varies depending on whether the communications are within a community or between communities.