Shocks are unexpected events that affect a Market – almost always negatively. This Market Simulation shows how a shock to the Market (like suddenly higher raw material costs) causes all Customer Demand to drop. Over time the Demand creeps up again, but at a slower rate than before.
As with the previous Market Simulation, MS-201 Cyclical Market Trend, this simulation models the Market Trend for jeans. Customers only buy new jeans when their old jeans have depreciated to a point where it would be more beneficial to replace them. The emergent behavior of such a Market is that sales will fluctuate in a cyclical manner.
But in this model there is a sudden shock to the Market at around the halfway point of the simulation. This shock causes all the Product Demand to drop. In addition, the shock also slows the rate at which Product Demand again increases.
As before, there are 1,000 Customers in this Market and 8 brands of jeans. The Price of all jeans is $40 and the average starting WTP of all is jeans is normally distributed around $20.
Customers wear out their jeans at different rates, and their WTP Increase Demand Rate is normally distributed around 20% per time-period. But after the Market Shock, this Increase Demand Rate is reduced for all Customers – slowing the recovery from the shock.
The simulation loops normally over the first 20 iterations at which point the Shock hits the Market. The simulation then loops over another 20 iterations before the results are analyzed.
The inner loop in this model is identical to that of the previous Market Simulation, MS-201 Cyclical Market Trend:
- Customers decide whether they want to purchase a new pair of jeans or stick with their old pair (‘No Sale’).
- If a Customer purchases a new pair, their WTP for all jeans is reset to zero.
- As Customers wear out their old jeans, their WTP for all brands increases at their personalized rate.
The results from the first 20 loop iterations show the same emergent behavior as before. The total Quantity of jeans purchased fluctuates according to a Business Cycle.
However, when the Market Shock hits at iteration #20 the Quantity of jeans purchased drops dramatically to almost zero.
Thereafter, during the 20 loop iterations after the Market Shock, the Business Cycle again emerges. But because the rate at which Customer Demand increases has been reduced the Market is slower to recover. The average Quantity sold per period is around 100 pairs, whereas before the Shock the Quantity sold per period was around 200 pairs.