Inside the Black Box: An Analysis of Underlying Demand Functions in Contemporary Business Simulations

Abstract

The paper reviews and compares the specific ways that eight(8) business simulations modeled their demand functions. It discusses the theoretical and empirical properties that should be embodied in both market and firm demand functions. The actual demand functions are then compared to the theoretical propositions contained in modern demand theory. The paper concludes by evaluating the advantages and disadvantages of utilizing different approaches and functions for modeling demand. It was found that the simulations studied contained many different demand forms. Certain functions or approaches performed well over the apriori defined demand criteria, while others were somewhat unstable and yielded unrealistic results. The paper's intent is not to criticize or compliment the sampled simulations, but rather to discuss a modeling approach based upon theory that should be used for effective modeling of demand.