A modified Lotka-Volterra model for competition forecasting in Taiwan\'s retail industry

Abstract

The retail industry is an important component of the supply chain of the goods and services that are consumed daily and competition has been increasing among retailers worldwide. Thus, forecasting the degree of retail competition has become an important issue. However, seasonal patterns and cycles in the level of retail activity dramatically reduce forecasting accuracy. This paper attempts to develop an improved forecasting methodology for retail industry competition subject to seasonal patterns and cycles. Using market share data and the moving average method, a modified Lotka-Volterra model with an additional constraint on the summation of market share is proposed. Furthermore, the mean absolute error is used to measure the forecasting accuracy of the market share. Real Taiwanese retail data from 1999 is used to validate the forecasting accuracy of our modified Lotka-Volterra model. Our methodology successfully mitigates errors from seasonal patterns and cycles and outperforms other benchmark models. These benchmarks include the Bass and Lotka-Volterra models for revenue or market share data, with or without using the moving average method. Our methodology assists the retail industry in the development of management strategies and the determination of investment timing. We also demonstrate how the Lotka-Volterra model can be used to forecast the degree of industry competition. (C) 2014 Elsevier Ltd. All rights reserved.