Call Markets Write-Up

Call Markets Write-up

Liheng Huang

A53103317

These few weeks we played many rounds of games which were occurred between buyers and sellers.

In these games, people are randomly assigned as a buyer or seller. All the people are supposed to be in a market. Sellers had three units of products to sell and the buyers also had three units to purchase. During the game, the sellers could provide ask prices and the buyers could post bid prices. In each round, sellers knew the cost of their products, and they earned money through the selling price being higher than their cost. They couldn’t ask a price which was lower than the cost. In contrast, the buyers would know the value of each product, and they made profit by buying the products at the prices which are lower than the values. What’s more, the trade didn’t have to occur. A trade was possible if the bid price was higher than at least one of the ask prices from the sellers. Each round last three minutes, during which the participants could optionally change their decisions at any time. During the game, the system would automatically arrange the prices submitted by the sellers and buyers in order to decide a provisional price for reference. The participants could submit their own prices according to this market clearing price; and only when the asking price and bidding price were equal or less than the provisional price, the sellers and buyers could make a deal.

In the first days of experiment, the participants could only submit their asking and bidding prices according to their own judgment. Then one of the two sides of the sellers and buyers would be allowed chat during the game, they might have the opportunity to cooperate. At last, the both sides would be allowed to communicate. At first, when we couldn’t chat with each other, the profits were some kind of even, because we could only make decisions by ourselves.

Then, when we could chat, we could see that the side which could communicate would be easier to win. They could collude to make their price higher or lower according to their standpoint. There was an interesting phenomenon existing in this game. There was always someone didn’t follow the collective action but insisted their own decision. Such as, many sellers wanted to raise the ask prices in order to increase the provisional price, these sellers would ask everyone to set up an “exact” price, which was higher than the provisional price. However, there were always someone didn’t follow and still set up a low price. This was a kind of prisoner dilemma. Finally, when I found out that there were always some people didn’t follow the collective actions but made decisions for themselves, I also gave up the collusion, because I think only my effort cannot change the result. What’s more, it was easier for to sell or buy the products unsuccessfully. So this was not worthy for continuing.