An agent-based model of consumer choice. An evaluation of the strategy of pricing and advertising

Abstract

The authors develop an agent-based model of the market where firms and consumers exchange products. Consumers in the model are heterogeneous in terms of features, such as risk-aversion or owned assets, which impact their individual decisions. Consumers constantly learn about products’ features through personal experience, word-of-mouth, or advertising, update their expectations and share their opinions with others. From the supply-side of the model, firms can influence consumers with two marketing tools: advertising and pricing policy. Series of experiments have been conducted with the model to investigate the relationship between advertising and pricing and to understand the underlying mechanism. Marketing strategies have been evaluated in terms of generated profit and recommendations have been formulated.