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Face-to-Face Pit Market

Game Description

Consumers and producers meet in a wholesale “pit’ market for apples. With repetition, market price converges to the price equating supply and demand.

In this game, consumers and producers try to agree upon transaction prices via face-to-face negotiation, and use MobLab to record transactions. MobLab’s Competitive Market game has similar learning objectives but uses a double auction where consumers submit bid and producers submit asks using MobLab.

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 consumers and producers 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

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

Brief Instructions

Players are all placed in a single group*, and then split into producer and consumer roles. To run multiple markets at once, add the game into a different playlist and then run both markets simultaneously. Students will need to know which market to participate in, and make sure they join the appropriate playlist. By default, consumers demand three units (with decreasing marginal valuation) and producers can provide up to three units at an increasing marginal cost.

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

*The current max group size is 100 students. To accomodate more than 100 students in one session, please run multiple markets in different playlists.

Tips

The following will help convergence to equilibrium.

  1. Point out that each time there is a transaction, the price appears in the chart on each group member's screen.
  2. If the group's values and costs do not change between games, point this out to students. In this way students may infer that prices in the previous game may be relevant in the next game.

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. Click the checkbox titled 'Show Identity' to make students' identities public information.

To change the costs and valuations assigned to producers and consumers, click on the Basic panel of the game configuration screen. Click on the option that says '4 Values (or 4 Costs)' and a pop-up window appears listing the consumer values (or producer costs). Here you can clear default values (or costs), and randomly generate new values (or costs) by clicking on the appropriate button in the pop-up window. To add your own values/ costs (or subtract unwanted ones) use the plus and minus buttons in the bottom left corner of the window. To add a value/ cost, click the plus button and enter the value desired. To remove a value/ cost, click on the number in the list and then click the minus button.

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 a one or two "missing" transactions. Price convergence is most clearly demonstrated by comparing transaction prices in early periods with those in later periods.

Use the Go To menu to view a different period of a multi-period game. We present the results by overall market outcomes, a supply and demand graph, and market transactions with the equilibrium price for reference.

Figure 1: Outcomes by Market

Click on the option Outcomes by Market in the results screen to reveal the summary table of outcomes (Figure 1). The table allows comparison between the equilibrium market outcome and group outcomes for each round of play. We present average price, the number of transactions, consumer and producer surplus, and government surplus for the market. Click on the checkbox titled 'Show Group Surplus' to reveal the results from student play.

Figure 2: Supply and Demand Graph

Click on the option Supply/ Demand Graph in the results screen to reveal the supply and demand graph for the market (Figure 2). This graph presents the market supply and demand curves (i.e., Marginal Private Benefit and Marginal Private Cost) as well as any applicable price control line for each round.

Figure 3: Transactions

Click on the option Transactions in the results screen to reveal the transactions and equilibrium price in the selected round (Figure 3). Individual transactions are plotted with price on the vertical axis and time on the horizontal.* 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 1: *The Supply and Demand and Transactions graphs are plotted according to the same y-axis limit (~130% of the max value/cost configured). Transactions with prices greater than the y-axis limit will not be shown!

NOTE 2: 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.

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