MobLab
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Aa

Competitive Market

Game Description

Buyers and Sellers trade 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.

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 reduces surplus in a market for a private good without externalities (see Key Treatment Variations).

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 or equal to the highest Bid. A transaction occurs at the lowest Ask if a Buyer presses Buy at Lowest Ask or submits a Bid higher than or equal to 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 Game Duration panel. A student’s total earnings 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 replay options:

With the default parameters, 15 oranges are potentially supplied and demand, and 13 (87%) 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 compare outcomes of this game with one of these linked games using the Compare button.

Figure 2: Supply, Demand, and Transaction Overview Charts

Results for each period are divided into three tabs: Overview, Breakdown, and Raw Data. The Overview panel offers the clearest picture of price trends. It shows two charts for each group (Figure 2): on the left, the Supply/Demand Chart generated from student costs and valuations; and the Transactions chart on the right. With price on the vertical axis and time on the horizontal, every transaction is plotted. With repetition, transaction prices will converge to 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 other outcomes such as quantities transacted and resulting market surplus. The Breakdown panel (Figure 3) shows these key outcomes for each group and across all groups.

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 3: Breakdown Tables

The Breakdown panel (Figure 3) displays three tables. The first table summarizes the equilibrium predictions. The second table shows for each group (and averages across groups) average transaction price, quantity transacted, and market efficiency. Market Efficiency is the fraction of available surplus that is actually realized in the market. These average statistics are useful for comparisons across rounds or to compare a market without intervention to a market with intervention.

The final table in the panel lists, in addition to the maximal surplus available, realized Buyer, Seller, government, and total surplus.

Robot Play

Robots (i.e., automated players) make reasonably rational actions (at staggered intervals) and generally move a market towards equilibrium. When the time comes for a particular robot to make a move, its strategy depends on its role as follows:

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