By Mike Reynolds Email MReynolds2bradfordacuk DEE 2011 Slide 1 Session Outline Introduction Example Game A Closer Look Extending the Game DEE 2011 Slide 2 Introduction Meister 1999 ID: 1027791
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1. The Flexibility of the Oligopoly GameBy Mike ReynoldsEmail: M.Reynolds2@bradford.ac.ukDEE 2011 - Slide 1
2. Session OutlineIntroductionExample GameA Closer LookExtending the GameDEE 2011 - Slide 2
3. IntroductionMeister (1999)Describes an oligopoly gameStudents split into teams/firmsMake decisions on quantityComplicated set upSimpler version of game DEE 2011 - Slide 3
4. Game Set-UpClass Room arrangedEach team/firm is given an envelope containing instructionsSee PDFDEE 2011 - Slide 4
5. Example GameSixth-form visitYear 128 teams50 minute sessionOutcomes will not necessarily look like the theoryThis is fineDEE 2011 - Slide 5
6. Round 1 - MonopolyTeams hand in output decisionsTeam 1: 2000 olivesTeam 2: 2500 olives Team 3: 3000 olivesTeam 4: 900 olivesTeam 5: 3000 olivesTeam 6: 3500 olivesTeam 7: 4000 olivesTeam 8: 3125 olivesDEE 2011 - Slide 6
7. Round 1 - ProfitsStudents then see profits of all firmsTeam 1: £4300 (from 2000 olives)Team 2: £3862.50 (from 2500 olives) Team 3: £2800 (from 3000 olives)Team 4: £3062.50 (from 900 olives)Team 5: £2000 (from 3000 olives)Team 6: £1112.50 (from 3500 olives)Team 7: £-1200 (from 4000 olives)Team 8: £2438.72 (from 3125 olives)DEE 2011 - Slide 7
8. Round 2 – (Cournot) CompetitionAll teams in same market Team 1Team 2Team 3Team 4Team 5Team 6Team 7Team 8QPRound 1Monopoly2000430025003862.50300028009003062.5030002000.0035001112.504000-120031252438.72--Round 2Cournot2000-700320-280200-250300-275750-387.50400-300300-275750-587.5050200Round 3CournotRound 4Cournot MC*2Round 5Cournot Collusion Total Profit3600.003582.502550.002787.502412.50812.50-1475.002049.22
9. Round 3 – (Cournot) CompetitionRepeat of Round 2DEE 2011 - Slide 9 Team 1Team 2Team 3Team 4Team 5Team 6Team 7Team 8QPRound 1Monopoly2000430025003862.50300028009003062.5030002000.0035001112.504000-120031252438.72--Round 2Cournot2000-700320-280200-250300-275750-387.50400-300300-275750-587.5050200Round 3Cournot1000-450300-275700-375500-325500-325500-325800-400.00777-394.2550770Round 4Cournot MC*2Round 5Cournot Collusion Total Profit3150.003307.502175.002462.502087.50487.50-1875.001654.97
10. Round 4 – (Cournot) CompetitionMarginal costs doubleDEE 2011 - Slide 10 Team 1Team 2Team 3Team 4Team 5Team 6Team 7Team 8QPRound 1Monopoly2000430025003862.50300028009003062.5030002000.0035001112.504000-120031252438.72--Round 2Cournot2000-700320-280200-250300-275750-387.50400-300300-275750-587.5050200Round 3Cournot1000-450300-275700-375500-325500-325500-325800-400.00777-394.2550770Round 4Cournot MC*250-87.06210274.3410025.886001155.25200251.7550-87.06150138.81433778.0417932.76Round 5Cournot Collusion Total Profit3062.943581.842200.883617.752339.25400.44-1736.192433.01
11. Round 5 – (Cournot) CompetitionCollusion allowedDEE 2011 - Slide 11 Team 1Team 2Team 3Team 4Team 5Team 6Team 7Team 8QPRound 1Monopoly2000430025003862.50300028009003062.5030002000.0035001112.504000-120031252438.72--Round 2Cournot2000-700320-280200-250300-275750-387.50400-300300-275750-587.5050200Round 3Cournot1000-450300-275700-375500-325500-325500-325800-400.00777-394.2550770Round 4Cournot MC*250-87.06210274.3410025.886001155.25200251.7550-87.06150138.81433778.0417932.76Round 5Cournot Collusion 2000-1200300-350.00500-450.00300-350.00300-350.005000-2700133-266.50400-40089330Total Profit1862.943231.841750.883267.751989.25-2299.56-2002.692033.01
12. Final ResultsTeam 4 winDEE 2011 - Slide 12 Team 1Team 2Team 3Team 4Team 5Team 6Team 7Team 8QPRound 1Monopoly2000430025003862.50300028009003062.5030002000.0035001112.504000-120031252438.72--Round 2Cournot2000-700320-280200-250300-275750-387.50400-300300-275750-587.5050200Round 3Cournot1000-450300-275700-375500-325500-325500-325800-400.00777-394.2550770Round 4Cournot MC*250-87.06210274.3410025.886001155.25200251.7550-87.06150138.81433778.0417932.76Round 5Cournot Collusion 2000-1200300-350.00500-450.00300-350.00300-350.005000-2700133-266.50400-40089330Total Profit1862.943231.841750.883267.751989.25-2299.56-2002.692033.01
13. DebriefNeed to give students a quick overviewIn other groups you could go furtherDepends on ability of studentsIn this case, I underlined the contrast between monopoly and competitionMonopolists made profits (and had high prices)Whilst competition drove prices very lowLots of other elements that could be teased outCollusionDEE 2011 - Slide 13
14. A Closer LookHave an idea how the game goesBut why is the game set up this way?Ensures the game is to be successfulCan alter elements to fit the studentsDEE 2011 - Slide 14
15. Workings of the Game (1)Recall“It is believed that in the relatively small market in which you operate that the total demand for olives even at very low prices is unlikely to be higher than 4000 units, and that even the biggest olive lover in the market is only willing to pay a maximum of around £5 per unit.”DEE 2011 - Slide 15
16. Workings of the Game (2)Sketching the demand curve:Or the equation:P = 5 – 0.00125QDEE 2011 - Slide 16PriceQuantity 5 4000
17. Workings of the Game (3)Only simple details givenEmphasise the intuitive aspectCan appeal to all levels of studentPossible to make it more complicated for more advanced students Profit maximisationCould become welfare maximisationDEE 2011 - Slide 17
18. OrganisationSet up in advanceNeed to have an estimate of the number of teams and the abilities of the playersSpreadsheet is set up in advanceOnly requires a demand structureDEE 2011 - Slide 18
19. EmphasiseNon-collusionOnly allow collusion at the end of the gameCosts for firms are the sameCould change to non-symmetricDEE 2011 - Slide 19
20. Decision FrameworkCan vary the types of competitionStart with a (relatively) simple roundCould repeatPre-announced game lengthFinal round can bring odd results (as we saw)Good idea to change the game at this pointFeedback of resultsProfits or…Can provide hints to classDEE 2011 - Slide 20
21. Refereeing the GameSet times that decisions need to be made byInitially a longer periodBe reactive to behaviourWarn and then punish teamsCollusionLate decisionsPlan alterations to the game DEE 2011 - Slide 21
22. Linking The GameSixth-form conference5-10 minute debriefOr an extra session talking about the results DEE 2011 - Slide 22
23. ExtensionsBasic game is appropriate to all Economic problem solvingCan vary for the type of student or specific learning outcomeSixth-form conferences1st year modules or inductions2nd or 3rd years on Microeconomic modulesPostgraduates DEE 2011 - Slide 23
24. Extensions: Level of InformationDetails of demandMore detailed informationStudents calculate solutionsCould even start with a utility functionDEE 2011 - Slide 24
25. Decision FrameworkMonopolyCournotBertrandPrice becomes decision variableEmphasis the Bertand paradoxStackelbergMake one team the leaderBundlingAny firm problem with a demand structureDEE 2011 - Slide 25
26. Other ExtensionsCan be part of a moduleFocus of maximisationProfit or collective welfare?Length of game50 minute session or over several weeksAssessmentGive marks based on profit/welfare (Meister, 1999)Gives students the details of the game and ask them to explain themLab-based simulationDEE 2011 - Slide 26
27. ReferencesS. R. Beckham. 2003. “Cournot and Bertrand Games”, Journal of Economic Education 2003 34(1), pp. 27-35. J. Brauer. 1994. “Games Economists Play: Non-Computerised Classroom-Games in College Economics” S. Gächter, C. Thoni., and J-R. Tyran. 2006. “Cournot Competition and Hit-and-Run Entry and Exit in a Teaching Experiment”, Journal of Economic Education 37(4), pp. 418-430. J. Meister. 1999. “An In-Class Economic Game”, Journal of Economic Education 30(4): pp. 383-391. A. Ortmann. 2003. “Bertrand Price Undercutting: A Brief Classroom Demonstration”, Journal of Economic Education 34(1): pp. 21-26DEE 2011 - Slide 27