If a firm s profits fall below a threshold, the firm will innovate or possibly imitate another firm which is making relatively large profits. Thus the behaviours of the firms are linked through the interaction of supply and demand and through the ability of firms to imitate others. Collings showed that this model could be reduced to a logistic equation equivalent to the Lotka-Volterra model which could be solved for the case of just two firms in the market. However, simulation was required to model a market with more than two firms. CA consist of lattices of cells, each of which can take one of a finite number of states.
Time moves forward in discrete steps.
After each step, a cell s state may change, depending on rules which refer to the states of neighbouring cells. The rules for state changes are identical for all cells. With this simple arrangement, it is possible to model rationality, mobility and interaction between agents represented as cells. Sakoda showed that segregation may result when agents are neutral towards the idea of interacting with their own group as well as when they are strongly in favour of their own group. Both these counter-intuitive results can be demonstrated quickly and easily with a CA model run on a computer and Hegselmann showed that in fact a large scale simulation of Sakoda s results reveals more segregation when the agents are neutral to others than when they are in favour of their own group.