Competitive Market: A Narrative Approach

Phil Limberg

Stories are the way we retain important abstract concepts. That is why recent events can be mapped into the Competitive Market game to form a meaningful narrative for students. Let’s look at how this can apply to shifts in demand. For example, in response to COVID-19 cases, many people around the world sought to buy more oranges to boost their Vitamin C. This led to price increases for oranges, as much as quadrupling. But why does an increase in demand lead to an increase in orange prices? Of course, from economics we know that this is a classic demand shift in which the increase in prices is due to the increase in quantity desired. How can you use this in your classroom? Let’s show you how you can bring this story to life with our Competitive Market game by using the following sequence game parameters and discussion tips.

Game 1: Competitive Market Baseline

In the basic market treatment, a key learning objective is to show how prices and quantity converge. A few factors to consider in execution are as follows:

Repetition: Markets are excellent teachers, but without profit-loss feedback, the students cannot learn from their actions and discover price. Having multiple periods with a break between each period for students to reflect is helpful.

Group Size: For large lectures (>50), one can increase group size to condenses the market and therefore makes convergence more stable. If you have a relatively small lecture, you can consider adding our programmed robots to the groups to fill up the empty spots.

Valuation Schedule: Backward induct from the demand increase manipulation. This manipulation should show a noticeable difference in total transactions. That means think carefully about the baseline valuation schedule, or follow our lead.

Parameter Recommendation: Consider students participating in a 16 person market across 2-3 trading periods of 120 seconds each and 10 seconds between each period. Holding the default parameters on the supply curve constant change the baseline parameters to 70 (min) and 120 (max). This will yield an equilibrium price of $.92 and 15 units. You will see that this allows for a noticeable difference in total transactions when there is a demand increase.

Across periods, the transaction prices tighten more quickly around the equilibrium price. This is a good opportunity to ask your students, Why? Why did the transaction prices tighten across periods? What were you thinking? Did you change your strategy? All good questions! Ask students to record how many units they were personally able to buy or sell at the end of each trading period. Having this information on hand will facilitate the conversations about the units sold after a demand increase.

Game 2: Competitive Market - Demand Increase

With the demand increase, there are now more people wanting to buy oranges while the supply is roughly equal (Orange producers can’t respond that quickly - nature has its limits). This can be thought of as an extension of the demand curve and consequently more people willing to pay higher prices for an orange. You can create that kind of effect by simply increasing the value range for demand while keeping the supply side constant.

Building on the recommendation, if group size is 16 (and each buyer/seller has three units to buy/sell) you can recruit all the additional supply (24 compared to 15 in the baseline) by setting the minimum value of the demand curve to the maximum cost on the supply curve. With the default supply parameters this means changing the demand curve to 120 (min) and 170 (max).

Using the selected parameters, there should be a noticeable difference in how many were able to buy/sell their third unit in the demand-surge in the Demand-Surge games. This opens up conversations about how additional units were supplied to the market because buyers started to bid more for each unit. Of course, it is also useful to focus on the transaction prices and how behavior adjusts to converge to a new equilibrium price when there is a shift in demand.

Thus, through altering one parameter, we can create a simple and yet immersive environment for our students to live through a narrative and learn and appreciate to think like an economist. All of human history is told in stories and our brains are wired for narrative. The stories we tell ourselves and each other, as well as those told to us, create a framework for how we understand the way the world works. MobLab uses interactive economics games to create immersive environments for you to easily pair with a contemporary story. This will make your economic lessons stick way beyond the classroom.

Would you like to learn more? Get in touch with our team. Click here to schedule a one-on-one demo meeting.

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