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Some Thoughts On Pricing, Part I - Simulation

October 15th, 2008 No comments

Here are the results of a simulation of competition against 1 other company and against 5 other companies, at maximum expected profit price (and 1000 trials/shops).  Everything is as in "Some Thoughts On Pricing, Part I" (axioms, distributions, etc.).  Just for kicks, I also simulated the cost functions of the companies as uniformly distributed between 1.00 and 4.00 pesos, and calculated their profits (severely negative, which suggests pricing differently at each shop, even within a range, is not a good strategy at all!).  The results are in good agreement with theory.

One:

Five: