MobLab
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Aa

Competitive Market

Game Description

Buyers and Sellers meet in a market, based on the double auction, for oranges. Buyers submit Bids (or purchase at the lowest ask), while Sellers submit Asks (or sell at the highest bid). With repetition, the market price converges to the price equating supply and demand (the market equilibrium price).

Learning Objective 1: Market Equilibrium

Without external guidance, the competitive market finds the price equating quantity supplied with quantity demanded.

Learning Objective 2: Market Efficiency

Self-interested Buyers and Sellers in a competitive market for a private good (without externalities) find the efficient (i.e. surplus maximizing) allocation of that good.

Learning Objective 3: Market Adjustment

After a shift in supply (or demand), the competitive market finds the new price equating supply and demand, and thus, the new equilibrium quantity transacted.

Learning Objective 4: Inefficient Market Interventions

A market intervention (binding price control, tax, or subsidy) alters the equilibrium price and quantity in a competitive market, and will reduce surplus in a market for a private good without externalities.

Brief Instructions

Students are randomly, and evenly, split into Buyers and Sellers of oranges. By default, Buyers demand three units with decreasing marginal valuation, and Sellers can provide up to three units at an increasing marginal cost. A Buyer can submit a Bid, while a Seller can submit an Ask. A transaction occurs at the highest Bid if a Seller presses Sell at Highest Bid or submits an Ask lower than the highest Bid. A transaction occurs at the lowest Ask if a Buyer presses Buy at Lowest Ask or submits a Bid higher than the lowest Ask.

When a transaction is completed, a student can attempt to transact her next unit. Period Duration determines the length of each trading period. All periods must be completed within the time you allot in the Duration panel. A student's payoff for the period is her surplus from the units she transacts.

While many groups will see prices nearing the equilibrium prediction towards the end of the first period, convergence improves with repetition. You have the following options.

With the default parameters, approximately 87% items potentially supplied or demanded are transacted in equilibrium. Furthermore, equilibrium producer and consumer surplus are relatively equal. If you change supply and demand curves in the Basic panel, click Supply/ Demand Graph to view the resulting market.

Tips

The following will help convergence to equilibrium:

Key Treatment Variations

After play has qualitatively converged to the equilibrium price, you can demonstrate convergence to a new equilibrium by shifting either supply or demand. Starting with the baseline market, click Copy and change the minimum and maximum values (in cents) of one of the curves in the Basic panel of the new game.

To add a government policy (tax, subsidy, or a price ceiling or floor), Copy a baseline game and specify the policy in the Basic panel of the new game. To view the equilibrium effects of the government policy, click Supply/Demand Graph .

Results

For most of the primary teaching goals, you will want to show convergence to the equilibrium prediction. We suggest focusing on price convergence, as it is not uncommon to have one or two "missing" transactions. Price convergence is most clearly demonstrated by comparing transaction prices in early periods with those in later periods.

Figure 1: Go To Menu

Use the Go To menu (Figure 1) to view a different period of a multi-period game. If you used one of the Replay options, you can switch between these linked games using the View menu.

Figure 2: Overview Tables

The Results display is divided into three tabs: the Graphs, Tables, and Raw Data. Tables (Figure 2) contains key statistics about each group's performance and decisionmaking, while Graphs (Figure 3) contains graphs depicting each group's market activities.

Figure 3: Supply, Demand, and Transaction Breakdown Charts

In each period, there are two charts for each group (Figure 3): on the left, the supply and demand chart resulting from student costs and valuations; and the Transaction Chart on the right. With price on the vertical axis and time on the horizontal, every transaction is plotted. With repetition, transaction prices will cluster around the equilibrium price depicted in the graph.

In addition to looking at price convergence, you could also compare early periods and later periods in terms of quantities transacted and resulting market surplus.

Note that especially with shorter round durations, it is not uncommon that the quantity transacted is smaller than predicted even if price qualitatively converges to the equilibrium price. This will affect realized surplus.

Figure 4: Average Price, Quantity, and Market Efficiency

There are two tables assessing group level and average (across groups) performance in a trading period. The first table presents average price, total quantity transacted, and market efficiency (Figure 4). Market Efficiency is the ratio of realized surplus to maximal surplus available. The average statistics are useful for comparisons across rounds or to compare a market without intervention to a market with intervention.

Figure 5: Surplus Summary

The final table (Figure 5) lists, in addition to the maximal surplus available, realized Buyer, Seller, government, and total surplus.

Robot Play

Our robot (i.e., an automated player) strategies for each role are the following:

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