A Little Exercise in Network Market Economics

CSE 112 (Networked Life)

To be held in class on Thursday, April 1, 2004


For this exercise, each of you will be assigned to one of five groups (A, B, C, D, or the special designation E), and also assigned one of two roles to play (either buyer or seller). You will be given a form indicating your group, role, and an identifying index (e.g. Csell2 indicates seller 2 in group C). On the form containing your assigned group and role, you will be asked to write your name. You should turn the form in at the end of the exercise. Participation in the exercise is mandatory.


The four groups A-D will be physically separated in Levine 101; TAs Nick and Kilian will help coordinate the group meetings. We will allow 15 minutes for these meetings.


If you are a buyer, you start the game with 1 virtual dollar. If you are a seller, you start the game with 1 unit of virtual wheat.


If you are a buyer, you should view your goal as trading your dollar for as much wheat as you can possibly get. If you are a seller, you should view your goal as trading your 1 unit of wheat for as much money (in virtual dollars) as you can possibly get. In particular, “winners” will be those players who obtain the most of the opposing quantity (wheat for buyers, dollars for sellers). If you are a buyer, any dollars you have after the game is over are worthless, and if you are a seller, any wheat you have after the game is over is worthless.


There is no “resale” allowed --- buyers may only exchange dollars for wheat, and sellers may only exchange wheat for dollars. Each player is responsible for keeping track of how much they have left so as not to overspend their initial allocation of dollars or wheat.


There will be real monetary prizes for the players judged most successful.


If you are in groups A, B, C, or D, you are only allowed to exchange dollars for wheat, or wheat for dollars, with members of your same group. See below for instructions for the special group E.


The group meetings are open dialogues within the group, with no private conversations allowed. Group meetings should be held quietly, so that other groups are unable to overhear the proceedings. During the meeting, sellers are free to propose prices (in virtual dollars) to buyers for their wheat, and buyers are free to propose offers (in virtual dollars) to sellers for wheat. Such proposals must be made to the entire group, not only to specific individuals. However, such proposals are not binding, and can be viewed as a form of information exchange or negotiation.


At any point during a group meeting, a buyer and a seller can commit to a binding contract (forms for which are provided), in which a specified amount of wheat is exchanged for a specified amount of virtual dollars. The amounts exchanged may be fractional (e.g., 25 cents exchanged for 0.5 units of wheat), so parties can gradually exchange their goods with more than one opposing player. At the time the contract is executed, both parties must actually be in possession of the amounts they are exchanging. The contract form identifies both parties by their code (e.g. Csell2 and Cbuy1). Executed contracts are irreversible.


We will periodically announce the amount of time remaining until “market close” (end of the group meetings).


There will be a small number of players whose group will not be A, B, C or D, but the special designation E, for “Every”. These players will still have buyer or seller roles assigned, but they are free to engage in exchange with absolutely any player of the opposing role, regardless of group; and of course, players in any group are free to trade with any player in group E. Players in group E are allowed to freely roam between, and participate in, all of the isolated group meetings.


Again, all proposed exchanges are non-binding until a contract describing the exchange is executed, at which point the exchange is irreversible.