Evolution of Specialization with Reachable Transaction Scope Based on a Simple and Symmetric Firm Resource Allocation Model

Xiao Sun; Yueting Chai; Yi Liu; Jianping Shen; Yadong Huang

doi:10.1109/TST.2017.7830892

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Open Access

Evolution of Specialization with Reachable Transaction Scope Based on a Simple and Symmetric Firm Resource Allocation Model

Xiao Sun, Yueting Chai(), Yi Liu, Jianping Shen, Yadong Huang

National Engineering Laboratory for E-Commerce Technologies (NELECT), Tsinghua University, Beijing 100084, China.

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Abstract

In the last decade, as an emerging transaction measure driven by computer and internet technology, e-commerce experienced explosive growth in many areas. It has greatly broken down the limitations of space and time to economic activities, thus changing the rules of business fundamentally. Significant work has been done to understand the laws of e-commerce from multiple dimensions, but the question of how e-commerce shapes firms’ specialization and market structure from the perspective of spatial factors remains obscure. In this paper, we propose a simple and symmetric firm resource allocation model with a specialized-economy production function and market size constraint, to investigate how individual firms adjust resource allocation with reachable transaction scope expanded. It is shown that with the expansion of reachable transaction scope, individual firms discretely take back one unit resource from a low-investment direction and, instead, channel it to a “specialized direction”. Meanwhile, at the macro level, an optimal division network evolves from a static self-sufficient stage to a diverse semi-specialized stage, and finally to a highly integrated completely specialized stage. Ergo, a Complex Adaptive System (CAS) based simulation framework is constructed. Designed simulation experiments are carried out and confirm to the analysis result of our proposed model.

Keywords

e-commerce evolution reachable transaction scope resource allocation complex adaptive system

References

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Agent class	Rule	Rule description
Environment	Rule E1: Size of world and number of entities	This rule defines the size of the world which is a two-dimensional plane for entities (firms and consumers) to exist in, and generates a certain amount of entities which are distributed geographically at random.
	Rule E2: Entity evolution process	This rule specifies the processes of elimination, mutation, and learning in intergenerational cycles. That is, at the end of every cycle, a certain proportion of firms which exhibit the lowest fitness values will be eliminated, and some mutation firms will be born and introduced into the market whenever unmet demand exceeds a threshold, and the other firms will learn and adjust their business models according to the performance of their nearby neighbors.
	Rule E3: Type of needed services	This rule sets the number and type of services needed by consumers.
	Rule E4: Reachable transaction scope	This rule sets the maximum distance that one firm has access to for the purposes of service provision.
	Rule E5: Specialized-economy degree	This rule governs the degree of specialized-economy, that is, the productivity a firm can gain from specialization.
Firms	Rule F1: Resource allocation adjustment	This rule governs the firm’s resource allocation adjustment process among all service directions. One firm can choose to increase or reduce the resource it puts into one direction according to prevailing business conditions.
	Rule F2: Production	This rule defines how much service a firm can provide based on its business model and specialization degree among all directions.
	Rule F3: Pricing strategy	This rule sets up the price of every service provided by a firm.
	Rule F4: Fitness updating	This rule defines the updating process of a firm’s fitness value. The fitness value of a firm depends on the number of consumers who bought its services and the price per unit service.
	Rule F5: Learning	This rule defines the learning process of firm. A firm will learn from the firm with the highest fitness value in its reachable transaction scope. Specifically, it will copy the business model and resource allocation scheme of the targeted firm.
	Rule F6: Mutation	This rule defines firm mutation process. After the elimination of firms at the end of every cycle, if unmet demand exceeds a certain threshold, then new firms will be introduced as mutations, which means these firms will choose business models and generate resource allocation schemes randomly.
Consumers	Rule C1: Service provider selection	This rule describes the process by which consumers choose service providers. A consumer will search their horizon and choose the firm which obtained the highest fitness value in the last simulation cycle and at least has one unit of required service.
Consumers	Rule C2: Consuming	This rule defines how a consumer consumes a service. A consumer will consume one unit service from every selected service provider if all their demand could be met by the current market.

Parameter	Value
World size	5 $\times$ 5
Firm number	400
Consumer number	400
Needed service types	3
Specialized-economy degree	2
Mutation rate	5%
Mutation introducing threshold	5%
First mutation rate	10%
Smart firms rate	20%
Reachable transaction scope	[0, 1]