Model file: 30th.mdl
Dataset files: s5.vdf, s-5.vdf, p5.vdf, p-5.vdf, mp5.vdf, mp-5.vdf.
Model download and operation instructions
Fluid milk retailers' costs often change. However, retailers do not immediately pass the full increase or decrease on to consumers. There are two characteristics of the pass-through of these cost increases and decreases that have been consistently observed in data studied by economists:
1) The percentage of a cost decrease that is passed on to consumers in the first month after the decrease is considerably less than the comparable percentage of a cost increase of the same magnitude over the same timeframe.
2) Both cost increases and decreases are virtually completely transferred over three months.
Question:
How does one design a well-formulated system dynamics model that meets the above criteria?
Comments on this model
This model (30th.mdl) produces this behavior, but is not properly formulated (described below). It uses a first order information delay (time constant = 1 month) for pass-through of cost increases, and a third order information delay (time constant = 1.44 months) for cost decreases. Behavior response to both a single step, and a single pulse, are as follows:
Note that the model behaves in accordance with the two required characteristics. However, the model is not a properly formulated system dynamics model, in that it contains If-then-else statements in all of its rate equations (See Sterman, Business Dynamics, Section 13.3.2, page 547, entitled "Avoid IF...THEN...ELSE Formulations"). Worse, four rate equations use DT (= TIME STEP in Vensim parlance) in their formulations. However, for this form of model formulation, using both 1st & 3rd order delays, these statements appear to me to be necessary to meet the two characteristics above.
Perhaps there is a better formulation that will meet the two required behavioral characteristics!
Question:
How does one design a well-formulated system dynamics model whose behavior meets the above two behavioral characteristics?