New Source Performance Standards Game*
In this experiment there are three independent markets, markets I, II, and III, in which the same good is exchanged. Each of you is a business firm in one of the three markets for a series of periods. The sellers with identification numbers 1 and 2 are fixed sellers and will be in markets I and II respectively, in all periods. The rest of you are mobile sellers (i.e., "new sources") will choose to join a market in sequence, at the beginning of each period. We will use seller identification numbers to indicate which sellers are in which markets. This information will be displayed so that everyone can see it.
Each firm has a number of units to sell. If you sell a unit, you will incur a cost for that unit, as explained below. Once you have seen the number of sellers in each market, you will be asked to set an offer price and choose a corresponding quantity to be made available at that price. All units that you sell will be sold at the same price. The only restriction you face is that the quantity offered must be positive and an integer (i.e., you cannot sell zero units or half a unit). You must write the price and quantity you selected on your seller decision sheet, in the appropriate column for the current period. After all sellers have chosen prices and quantities, the decision sheets will be collected and the prices for all markets will be written on the blackboard. Sellers’ identification numbers are used to label their prices.
Then, we will simulate the buyers in the following manner: in each market there are 12 fictitious buyers. Each of the 12 buyers is willing to purchase at most one unit of the good and will purchase it only if the price offered is less than or equal to the “value” the buyer has for the unit. The buyers are ordered by their values so that the buyer with the highest value purchases first. Then, the buyer with the second highest value purchases, and so on. The buyers purchase their units from the seller that offers the lowest price. If two or more sellers in a market choose the same low price and there are not enough consumers willing to buy all the units offered at that price, we will randomly select one of the sellers to be the first to sell.
The trading period ends when the last buyer has had the chance to buy or as soon as all of the units offered have been sold. When the period has ended we will write on your seller decision sheet the units you sold, and we will return the decision sheets to you so that you can calculate your earnings for the period.
Source: Capra, C. Monica, Jacob K. Goerree, Rosario Gomez, and Charles A. Holt, "Predation, Asymmetric Information and Strategic Behavior in the Classroom: An Experimental Approach to the Teaching of Industrial Organization," International Journal of Industrial Organization, January 2000.
*Examples of NSPS from EPA website