Agent-based Modeling of Dynamic Pricing Scenarios to Optimize Multiple-generation Product Lines with Cannibalization

In today’s market, companies tend to develop long-term multiple-generation product strategies instead of releasing consecutive single products to maintain market competitiveness. Even though this strategy affords market vitality, it also can bring about inter-product-line cannibalization. Cannibalization within a multiple-generation product line is a complex problem, and it has seldom been explored. It indeed is a critical subject that companies need to take into account at the product line planning stage in order to ensure their long-term profitability. In this study, we view a multiple-generation product line as a complex adaptive system, and propose a new model that can simulate the potential cannibalization scenarios within a multiple-generation product line. The model concentrates on the price variations over time for every single generation of product in a multiple-generation product line and is built upon an agent-based-methodology. Every product generation in the product line is regarded as an independent agent, and is authorized to adjust its sales price according to the shifts in the market demand. The proposed model can assist companies in developing appropriate dynamic pricing strategies at the early product line planning stages. © 2011 Published by Elsevier B.V. Multiple-generation product lines, cannibalization, agent-based modeling, dynamic state variable models.