| Game: #41 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Course: | Micro, Industrial Organization | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Level: | Principles and up | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Subject(s): | Collusion | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Objective: | Illustrates the tendency of collusive agreements to breakdown due to competitive behavior. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reference and contact: | Ortmann, Andreas and David Colander. Experiments in Teaching and in Understanding Economics. Burr Ridge, IL: Irwin, 1995. (Experiment #4) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Abstract: | Each student
faces a decision in which they must either choose
"1" or "0" in a secret vote. The
payoff to each student depends on their individual choice
and the aggregate number of "1s" chosen by the
class and is described by the payoff table below.
The first row indicates the number of students choosing the number 1. The second and third rows indicate the payoff to each student depending on whether they chose number 1 or number 0. Thus, choosing 1 is equivalent to colluding and choosing 0 is regarded as cheating. Students are instructed not to talk with one another during the decision making process. Each student records his/her choice on a piece of paper to be collected by the instructor. Not surprisingly, most students tend to choose 0 during this first stage. Students are then given a second chance to make a choice, but this time with the opportunity to openly discuss the decision with other participants. Since decisions are again made by secret ballot, any collusive agreements to choose 1 inevitably break down. |
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| Class size: | Any number of students (may require extending the payoff table). | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Time: | 15 minutes. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Variations: | Additional repetitions with or without anonymity can be run depending on class time. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| See also: | Oligopoly games |
| Game: #42 | ||||||||||||||||||||||||
| Course: | Micro, Industrial Organization | |||||||||||||||||||||||
| Level: | Principles and up | |||||||||||||||||||||||
| Subject(s): | Oligopoly | |||||||||||||||||||||||
| Objective: | Illustrate the power of game theory in explaining the behavior of oligopolists. | |||||||||||||||||||||||
| Reference and contact: | Seiver, Daniel. "A Simple Game Theory Experiment for Teaching Oligopoly." Classroom Expernomics, 4(2), Fall 1995, pp. 1-3; seiverda@muohio.edu | |||||||||||||||||||||||
| Abstract: | After
presenting a standard prisoner dilemma game to illustrate
the elements of game theory, the instructor introduces a
3x3 profit matrix below for an oligopoly pricing game.
Team B’s payoff are listed first.
Three students are chosen to represent each team and given three minutes to choose a price (by writing it down on a piece of paper). The rest of the class is instructed to make a prediction as to the prices chosen by each team. After the choices are revealed the results can be compared to the Nash equilibrium of ($8, $8). |
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| Class size: | Any number of students. | |||||||||||||||||||||||
| Time: | 15 minutes. | |||||||||||||||||||||||
| Variations: | None indicated. | |||||||||||||||||||||||
| See also: | Oligopoly games | |||||||||||||||||||||||
| Game: #43 | |||||||||||||||||||||||||||||||||
| Course: | Micro, Industrial Organization | ||||||||||||||||||||||||||||||||
| Level: | Intermediate and up | ||||||||||||||||||||||||||||||||
| Subject(s): | Predatory pricing | ||||||||||||||||||||||||||||||||
| Objective: | To illustrate the strategic implications of predation theory. | ||||||||||||||||||||||||||||||||
| Reference and contact: | Kleit, Andrew. "Predation in the Classroom." Classroom Expernomics, 4(2), Fall 1995, pp. 3-4; eokleit@lsuvm.edu | ||||||||||||||||||||||||||||||||
| Abstract: | Students take
on the role of firms as either entrants or incumbents in
a multi-period entry game. Incumbents are of two types:
they either accommodate entry ("soft"
competitors) or prefer predation ("hard"
competitors). The identity of each incumbent is unknown
to potential entrants. Given this information asymmetry,
a soft incumbent will choose to prey on entrants in early
rounds so as to not advertise that they are soft. The
payoff tables are below (though in the actual
instructions to students Kleit prefers to use neutral
terms rather than the descriptive terms used below in
order to avoid biasing behavior):
Students are randomly paired with an opposite type each period and play for 3 or 4 periods. Kleit’s experiments indicate that almost all entrants choose to enter in the first period. Subsequent periods see entry occur against those incumbents who have revealed themselves to be "soft." After these initial periods, the students are reassigned roles and randomly paired again for a second round of gaming. Most of the soft incumbents then figure that it is profitable to prey in the early periods, thereby discouraging later entry. |
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| Class size: | Any number of students. | ||||||||||||||||||||||||||||||||
| Time: | 75 minutes. | ||||||||||||||||||||||||||||||||
| Variations: | None indicated. | ||||||||||||||||||||||||||||||||
| See also: | Oligopoly games | ||||||||||||||||||||||||||||||||
| Game: #44 | |
| Course: | Micro |
| Level: | Intermediate and up |
| Subject(s): | Theory of the firm. |
| Objective: | To illustrate the nature of motivation and coordination problems facing the firm. |
| Reference and contact: | Bouchez, Nicole M. "Motivation and Coordination: Experiencing Organizational Dynamics." Classroom Expernomics, 6(2), Fall 1997, pp. 8-1; bouchez@cats.usc.edu |
| Abstract: | Students are
divided into groups of between 5 and 15 players each.
Several students serve as monitors. For the coordination
game, students are asked to choose a number between 1
and 10 (inclusive) based on the following payoff rule:
let LG be the smallest number chosen in team G, let xi ³ LG be the choice
of individual I in that team. Student I's payoff is LG less his
deviation di = xi - LG from the team's choice. In other words, pi = LG - di (= 2LG -xi) are the student's profits for the period.
After all students make their choices, the monitors
announce the value of LG for all groups and members calculate their
profits accordingly. The pareto efficient equilibrium is
for all group members to choose xi = 10; there is no incentive to defect. During
the initial periods of play, no communication is allowed
among group members, though this restriction is relaxed
in latter periods. For the motivation game, the payoff rules are changed. During each period, students must choose either 0 or 1 according to the following payoff rule. Let MG = Sxi be the total number chosen in group G. Player I's profits are pi = MG - 5xi, where 5xi represents an effort cost. The students write their choices down and the monitors announce the value of MG for each group. The pareto outcome is for all members to choose xi = 1, though now there is an incentive for individuals to defect. Again, the ability to communicate is used as a treatment variable. |
| Class size: | Any size (with a few minor adjustments). |
| Time: | One class period. |
| Variations: | Another treatment variable is to vary the group size during the experiment. |
| See also: | Oligopoly games |
| Game: #45 | |||||||||||||||
| Course: | Micro, macroeconomics, law & economics, managerial economics, industrial organization | ||||||||||||||
| Level: | Principles and up | ||||||||||||||
| Subject(s): | Coordination | ||||||||||||||
| Objective: | Illustrates ideas associated with team production and game-theoretic concepts of Nash equilibrium and Pareto optimality. | ||||||||||||||
| Reference and contact: | Capra, C. Monica and Charles A. Holt. "Coordination." Southern Economic Journal, 65(3), January 1999, pp. 630-636; cah2k@virginia.edu | ||||||||||||||
| Abstract: | Students are
divided into groups of various sizes and each student is
given two playing cards – one red, one black.
Students must simultaneously decide whether to put out
"high" effort (by playing a black card) or
"low" effort (by playing a red card), with high
effort more rewarding but also more costly. The game is
structured so that there are two equilibria: one in which
all students choose high, and one in which all students
choose low. The game is described by the payoff matrix
below:
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| Class size: | Any number. | ||||||||||||||
| Time: | 35-45 minutes. | ||||||||||||||
| Variations: | The instructor can vary the size of the groupings to illustrate the problems or coordination among larger groups. | ||||||||||||||
| See also: | Oligopoly games | ||||||||||||||
| Game: #46 | |
| Course: | Micro, Labor |
| Level: | Principles and up |
| Subject(s): | Labor market discrimination. |
| Objective: | To illustrate economic inefficiencies resulting from discriminatory hiring practices. |
| Reference and contact: | Anderson, Donna M. and Michael J. Haupert. "Employment and Statistical Discrimination: A Hands-On Experiment," Working Paper, University of Wisconsin-La Crosse, October 1997; ander_dm@mail.uwlax.edu; haupert@mail.uwlax.edu |
| Abstract: | Students play the role of employers who must hire eight workers from a pool of twenty applicants. Applicants differ according to their productivity, which ranges from 0 to 10 units of production. The labor pool contains two types of workers, pink and blue, whose characteristics can be observed at zero cost by each employer. What cannot be observed at zero cost is the actual level of production of each worker. Employers do have, however, summary statistical information concerning the worker pool. Each employer is given a deck of cards, ten of which are pink and ten of which are blue. The productivity of each applicant is written on the back of the cards. The deck is shuffled and represents the order in which the applicants are interviewed. The students are divided into equal numbers of three market types representing different distributions of worker productivity. Three rounds are played. In the first round, the cost of interviewing equals 2 units of production. The second round has a cost of .5 units of production, while the third round has a cost of 2 units of production and a requirement that employers hire an equal number of pink and blue workers. |
| Class size: | Any size. |
| Time: | One class period. |
| Variations: | In order to generate wage gaps, allow employers to pay workers what employers think workers are worth. Another extension is to generate occupational segregation by requiring employers to hire workers into one of two jobs: a low-pay and a high-pay job. |
| See also: | Labor market games |
| Game: #47 | |
| Course: | Micro, Labor |
| Level: | Principles and up |
| Subject(s): | Reciprocal gift exchange, moral hazard. |
| Objective: | To illustrate the effects of moral hazard as applied to labor markets. |
| Reference and contact: | Morgan, John. "Reciprocal Gift Exchange." Available at http://faculty.haas.berkeley.edu/rjmorgan/reciproc.htm. |
| Abstract: | Students are divided into equal groups of firms and workers and participate in a two stage game. In stage one, a double auction is used to allocate labor. Each firm can hire only one worker and each worker can only work for one firm. A firm's profits are equal to 2e - w, where e is the effort level put out by their worker and w is the wage. A worker's earnings are equal to w - e. In stage two, all employed workers simultaneously and privately choose their level of effort from the set E = {1, 2, 3, 4, 5}. Earnings are then calculated for all and a new period begins. Given the moral hazard conditions, Morgan reports that involuntary unemployment and excess effort by workers is easily exhibited, along with an upward sloping wage-effort profile. |
| Class size: | 10 to 40 students. |
| Time: | 30 - 45 minutes. |
| Variations: | None indicated. |
| See also: | Labor market games |
| Game: #48 | |
| Course: | Micro |
| Level: | Principles and up |
| Subject(s): | Comparative advantage and trade. |
| Objective: | To illustrate the role of comparative advantage in generating gains from trade. |
| Reference and contact: | Stodder, Jim. "A Simple Experiment of Comparative Advantage." Classroom Expernomics, 3(1), Spring 1994, pp. 8-10. |
| Abstract: | Students are paired up with one representing the United States and the other Mexico. Each student is provided a graph containing the production possibilities frontier (PPF) between two goods, trucks and computers, for their respective country. The PPFs are drawn such that the US has an absolute advantage in both goods and a comparative advantage in computers and Mexico has a comparative advantage in trucks. Students are then asked to choose any point along his or her PPF that he or she "likes" the best (which represents the point of production/consumption in autarky). Next, each pair is asked to find a trade involving trucks and computers that makes each country better than their initial "best points," where better off means that a country gets no less of each good and more of at least one good compared to autarky. |
| Class size: | Any size. |
| Time: | One class period. |
| Variations: | None indicated. |
| See also: | International trade games |
| Game: #49 | |
| Course: | Micro |
| Level: | Principles and up |
| Subject(s): | Comparative advantage and trade. |
| Objective: | To illustrate the role of comparative advantage in generating gains from trade. |
| Reference and contact: | Yandell, Dirk. Using Economic Experiments in the Classroom. Upper Saddle River, New Jersey: Prentice Hall, 1999a. (Experiment #8); yandell@acusd.edu |
| Abstract: | Nearly identical to Game #48. |
| Class size: | Any size. |
| Time: | One class period. |
| Variations: | None indicated. |
| See also: | International trade games |
| Game: #50 | |
| Course: | Micro, macro, international trade |
| Level: | Principles and up |
| Subject(s): | International trade |
| Objective: | Illustrate the gains from trade and the law of one price. |
| Reference and contact: | Hazlett, Denise. Economic Experiments in the Classroom. Reading, MA: Addison Wesley Longman, 1999. (Experiment #4); hazlett@whitman.edu |
| Abstract: | The class is divided into two double oral auction markets with students taking on the role of buyers and sellers. Each market represents a different country. Initially a trade barrier prevents trading between countries and, consequently, each market generates a different equilibrium price: one with a high price and the other with a low price. In later periods, the instructor announces a "free trade" agreement between the countries and allows trade to take place. The free trade price will ultimately end up somewhere between the no-trade prices. |
| Class size: | 10 to 50 students. |
| Time: | One class period. |
| Variations: | None indicated. |
| See also: | International trade games |
| Copyright 2000 by Greg Delemeester
and Jurgen Brauer Last Updated: 02/20/2005 |