Market Growth

John Morecroft’s implementation of Jay Forrester’s Market Growth model, replicated by an MIT colleague whose name is lost to the mists of time, from:

Morecroft, J. D. W. (1983). System Dynamics: Portraying Bounded Rationality. Omega, 11(2), 131-142.

This paper examines the linkages between system dynamics and the Carnegie school in their treatment of human decision making. It is argued that the structure of system dynamics models implicitly assumes bounded rationality in decision making and that recognition of this assumption would aid system dynamicists in model construction and in communication to other social science disciplines. The paper begins by examining Simon’s “Principle of Bounded Rationality” which draws attention to the cognitive limitations on the information gathering and processing powers of human decision makers. Forrester’s “Market Growth Model” is used to illustrate the central theme that system dynamics models are portrayals of bounded rationality. Close examination of the model formulation reveals decision functions involving simple rules of thumb and limited information content. …

See also:

Forrester, J. W. (1968). Market Growth as Influenced by Capital Investment. Industrial Management Rev. (MIT), 9(2), 83-105.

The manager, by evolving the policies that guide decision making, designs a corporate system. Such systems have a feedback loop structure that determines the growth and stability of the enterprise. The complexity of these systems usually precludes intuitive determination of how a policy change will affect the total system. A simulation model of the feedback structure and policies allows one to try policy changes to see how the system reacts. … Growth and stagnation of a new product is taken as an example to show how the ideas of feedback structure can explain a common occurrence in market behavior. Very often early sales grow rapidly, only to level off even while the market demand continues to rise, as shown, by competitors capturing an increasing share of the market. One cause is found in the capital investment policy of the firm, as shown in a model involving salesmen, market reaction to delivery delay, and capital equipment expansion.

If anyone has better article links, or creates .cin files that replicate Forrester’s or Morecroft’s scenarios, I’d love to have them.

Units balance. This should run with Vensim PLE or any other version of Vensim.

MarketGrowth4.vpm

MktGrow4.mdl