Problem Set #2: Double-Oral Auction Analysis

You have participated in two experiments using a double-oral auction market. You are now to write a brief report interpreting the results of the experiments based on the economic theory of markets. This report is to be written in collaboration with a partner as assigned here. Each pair of partners should submit one report, which is due in class on the morning of Wednesday, September 14. Electronic reports are accepted (by email), but you will probably find it easier to draw the graphs by hand, so I expect most pairs to turn in hard-copy reports.

Information about buyer values and seller costs in each experiment, along with full documentation of experiment results, are available using links provided at the bottom of this page. There are two sets of results, one for the 10:00 class and one for the 11:00 class, located on different "sheets" within the workbook. In Excel, use the tabs on the bottom to change sheets. You are only responsible for analysis of your own class, not both. These files should open in any recent version of Excel and may also work in alternative spreadsheet programs. You may use the computational and or graphing features of Excel to make calculations that are relevant to your analysis.

In preparing your analysis, you should consider the following questions:

1. What was the demand curve for widgets in each experiment by that group of participants designated as "buyers?" (Hint: This is to be derived from their given values, not from the results of the experiment.)
2. What was the supply curve for widgets in each experiment by that group of participants designated as "sellers?" (The above hint applies here as well.)
3. Given the demand and supply curves, what outcome in terms of quantity exchanged and price do you expect in each experiment based on the theory of competitive markets?
4. What pattern did the distribution (and, in particular, the dispersion) of trading prices follow from the first trading period to the last? Is this what you would expect? Why?
5. How did the two experiments in your class differ from one another? How would you expect these differences to affect the outcomes? Do you see these effects in the actual results?
6. How closely did the experimental market compare to the textbook paradigm of a competitive market, both in terms of assumptions and in terms of the actual prices and quantity exchanged that you observed? What were the principal similarities and differences?
7. Suppose that buyers and sellers with values and costs like those in the experiment were interacting in a market that achieved perfectly competitive equilibrium (CE). In a CE, some buyers and sellers may choose not to undertake transactions, but all transactions that occur are at the same competitive equilibrium price. How much profit would each buyer and seller have earned (per period) in CE? What would have been the total profit to buyers and total profit to sellers (per period) in CE? How do those total "potential" profits for buyers and sellers compare to the total actual profits from exchange in the various periods of the experiments? (Note: It will take you a long time to calculate the profits from every period of every experiment. Select a few periods to work with at first and then go as far with this as you can/want to.)
8. In one experiment there may have been periods in which the price was restricted by a price control (ceiling or floor), on in which sellers or buyers were urged to collude. Do the results you observe under these market distortions match those you expect based on economic theory? Explain.

Links to data values, experiment results, and partner assignments:

• Data values for double-oral auction (Excel spreadsheet)
• Results of Fall 2016 experiments (Excel spreadsheet)
• Partners for Problem Set #2 (pdf document)

Any questions or problems? parker@reed.edu