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Mme8201 8 Markov Analysis

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35 views4 pages

Mme8201 8 Markov Analysis

Uploaded by

Josephat Kalanzi
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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8.

MARKOV ANALYSIS

8.1 States of a Markov Chain


A state space consisting of discrete elements can be used to derive useful
and analytical results for its behavior.

Consider a set of preferences {A,B,C} for the sample space of a random


experiment performed in time. We can define a family of random variables

{X(t) , t ≥ 0} indexed by the time parameter t. The process X(t) is a


stochastic process where values assumed by the process are called the
states

Example

In a study conducted over a period of time, suppose the estimates


obtained for the consumer brand switching behavior considering three
brands A, B, and C are as follows:

Out of those who bought brand A in one month, during the next month
60% buy A again, 30% switch to brand B and 1060% switch to brand C.
For brand B and C these figures are:

B to A - 50% B to B - 30% B to C - 20%

C to A - 40% C to B - 40% Cto C - 20%

The behavior of the consumer can be considered as a stochastic process


with three different states A, B and C.

MME 8201 Industrial Modeling & Algorithms Dr Kizito Paul Mubiru


8.2 State Probabilities

Assuming Xn is the m-state finite state Markov chain with values (0, 1,
2,…………m-1), the transition matrix P can be given by:

P00 P01 …………… P0,n+1

P= P10 P11 …………… P1,n+1


.
.
Pm-1,0 Pm-1,1 ………….. Pm1,m+1

The elements P00 , P01 …. P0,n-1; P10 , P11 ……… P1,n-1; Pm-1,n , Pm-1,1……. Pm-1,m-1

constitute the transition probabilities of the matrix P. Considering the


Example (section 8.1), the transition matrix P with the associated
transition probabilities of the brand switching problem are given by:

A B C
A 0.6 0.3 0.1

B 0.5 0.3 0.2

C 0.4 0.4 0.2

Note that ⅀ Pij = 1 . The sum of rows must equal to 1, a condition for the
sum of probabilities of events.

MME 8201 Industrial Modeling & Algorithms Dr Kizito Paul Mubiru


8.3 Market Shares

A petrol station owner is considering the effect on his business (Superpet)


on a new petrol station (Global) which has opened. Currently, the total
market shared between Superset and Global follows: Superset has 80% of
the market and Global has 20%. Analysis over the last week has indicated
the following probabilities for customers switching the petrol station they
stop to each week.

To

Superset Global

Superset 0.75 0.25

From

Global 0.55 0.45

What will be the expected market share for Superset and Global after
another two weeks have past?

Letting State 1 = Superset , State 2 = Global, we have the initial


state S1 given by S1 = [0.80 0.20] and the transition matrix P is
given by

After one week has elapsed, the state of the system


S2 = S1 P=[0.71 0.29] . So after two weeks have elapsed, the
state of the system S3 = S2P = [0.692 0.308]. Note that the

MME 8201 Industrial Modeling & Algorithms Dr Kizito Paul Mubiru


elements of S2 and S3 add to one as required. Hence, the market share
after two weeks have elapsed are 69.2% and 30.8% for Superset and
Global respectively.

8.4 Equilibrium Conditions

Let {X0 , X1 , …………Xn} be a Markov chain with transition matrix P and


state space S. Let πT be a row vector denoting a probability distribution on
S; so each element πi denotes the probability of being in state i and

𝑖=1 πI =1, where πi ≥0 for all iI = 1, 2 , ……..N . The probability


∑𝑁
distribution πT is an equilibrium distribution of the Markov chain if πT P = πT

That is πT is an equilibrium distribution if

(πT P)j = ∑𝑁
𝑖=1 πI Pij = πj for all j=1,2,…………N

REFERENCES

[1] Balnaver M, Caputi P Introduction to Quantitative Research Methods,


SAGE Publications Ltd, 2001
[2] Brandimarte P Quantitative Methods: An Introduction for Business
Management, John Wiley and Sons, 2011
[3] Aidley D Introducing Quantitative Methods: A Practical Guide,
Bloomsbury, 2018
[4] Canela M.A., Alegre I, Ibarra A Quantitative Methods for Management A
Practical Approach, Springer International Publishing, 2014

MME 8201 Industrial Modeling & Algorithms Dr Kizito Paul Mubiru

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