  A hybrid simulation-based framework involving system dynamics and agent-based
simulation is proposed to address duopoly game considering multiple strategic
decision variables and rich payoff, which cannot be addressed by traditional
approaches involving closed-form equations. While system dynamics models are
used to represent integrated production, logistics, and pricing determination
activities of duopoly companies, agent-based simulation is used to mimic
enhanced consumer purchasing behavior considering advertisement, promotion
effect, and acquaintance recommendation in the consumer social network. The
payoff function of the duopoly companies is assumed to be the net profit based
on the total revenue and various cost items such as raw material, production,
transportation, inventory and backorder. A unique procedure is proposed to
solve and analyze the proposed simulation-based game, where the procedural
components include strategy refinement, data sampling, gaming solving, and
performance evaluation. First, design of experiment and estimated
conformational value of information techniques are employed for strategy
refinement and data sampling, respectively. Game solving then focuses on pure
strategy equilibriums, and performance evaluation addresses game stability,
equilibrium strictness, and robustness. A hypothetical case scenario involving
soft-drink duopoly on Coke and Pepsi is considered to illustrate and
demonstrate the proposed approach. Final results include P-values of
statistical tests, confidence intervals, and simulation steady state analysis
for different pure equilibriums.
