Antitrust Market Simulation

 

Randal C. Picker

Leffmann Professor of Commercial Law

The Law School, The University of Chicago

 

Website: picker.uchicago.edu

Email: r-picker@uchicago.edu

Voice: 773.702.0864

Twitter: randypicker

 

The idea is to try to do some market simulations to enable students to see firsthand the effects of market power. These are intended to be purely educational and the results of the simulations will not count towards your grade.

Week 1: Organization

We will be using Twitter as a group messaging platform to act as our market simulator. You should set up an identity with Twitter and can do that easily and for free at twitter.com. At the end of the week as the class enrollment has settled down, I will assign students numbers for the simulations.

Week 2: Test Run of the System, Thursday, January 13: 7 pm to 10 pm

The initial simulation will be of a matching market. The offline version of this game is played with a deck of cards and we will track that structure online. Players will be assigned a color, black or red, and will seek to make a match with the opposite color. Black cards match with red cards and vice versa. You can match only once in a trading period.

Matches are worth 100 points. A successful match is a pairing between the holder of a red card and the holder of a black card in which they agree on how to divide the 100 points between them. A deal can be done at any division of points ranging from (100,0) to (0,100).

You will make and accept offers over Twitter. We will use a highly structured approach to messaging. This should make it possible to dump the messages down to an Excel spreadsheet so that we can look at the results of the simulation.

Messages will have the following message structure:

@rcpclass Simulation field, ID field, Market field, Offer Number field, Type field, Offer field, Offer Type field, Deal field

·       rcpclass” is an identity that I have set up on Twitter for the class simulations. By starting your tweet—that is what they call a message on Twitter—with @rcpclass you will be sending the tweet to my class identity and it will not be seen by your other Twitter followers. Tweets are generally public but this will mean that only individuals looking for tweets to @rcpclass will really see these messages.

·       The Simulation field will just be the number of the simulation that we are doing. It will be three characters of the form X##.

·       The ID field will consist of your student number, as assigned by me. It will be four characters of the form S###.

·       The Market field will be the market that you have been assigned to for that particular simulation. That will change from simulation to simulation. You can only do deals with students who are in the same market that you are in. The market field will be three characters of the form M##.

·       The Offer Number field will track the number of offers that a particular student has made a in a given simulation. It will consist of four characters of the form F###. Students will number offers consecutively in a particular simulation.

·       The Type field will consist of three characters and will be either RED or BLK depending on the type that you have been assigned.

·       The Offer field will be the offer that you are willing to accept. It will consist of three characters of the form ###. An offer of 100 means that you are proposing a division of 100/0. The offer field will be set to 000 if the message is not an offer but is instead an acceptance, confirmation or cancellation of a prior offer.

·       The Offer Type field  and Deal fields are closely related. The Offer type field will consist of four characters and will be one of five messages: OPEN, S###, ACPT, CFRM or CNCL. You can only have one offer outstanding at a time. Open indicates that you are making an offer that can be accepted by anyone holding an opposite color card on the terms that you have offered. S### indicates that your offer can be accepted by only student S###. For both of these offer types, the Deal field should be set to NO. If you want to change offers, you need to cancel your prior outstanding offer first. To do that, set, the offer type field to CNCL and the deal type field should be set to the offer number that you are canceling. If you are accepting an offer that has been made, you should set the offer type field to ACPT. In the deal field, list the number of the student whose offer you are accepting and the offer number that is being accepted. In this case, the deal field will have structure, S###:F###. Finally, once a deal has been struck, both parties to the deal should send a message where the offer type field is to set CFRM and the deal field is set to S###:S###:###:###. The first student number is the lower student number in the matching pair, the second student number the higher number. The third number is the point allocation to the black card, the second number the point allocation to the red card.

Consider a few messages to see what that all means:

@rcpclass X01, S050, M01, F001, RED, 070, OPEN, NO: Each message will consist of 9 chunks, as this one does. In the first simulation, student 50 holding a red card, assigned to market 1, makes an initial offer to anyone of 70. That means that any student in the same market holding a black card can accept that offer if he or she is willing to accept only 30 points.

@rcpclass X01, S075, M01, F001, BLK, 060, OPEN, NO: Student 75 holding a black card has made an open offer of 60.

@rcpclass X01, S080, M01, F001, RED, 055, S075, NO: Student 80 holding a red card makes an offer to just S075 suggesting a division of 55/45.

@rcpclass X01, S075, M01, F002, BLK, 000, CNCL, F001

@rcpclass X01, S075, M01, F003, BLK, 050, S080, NO

In these two messages, student 75 first cancelled her outstanding initial offer and then made a counteroffer to S080 suggesting a 50/50 split.

@rcpclass X01, S080, M01, F002, RED, 000, CNCL, F001

@rcpclass X01, S080, M01, F003, RED, 000, ACPT, S075:F003

Student 80 cancelled her prior outstanding offer and then accepted student 75’s offer of a 50/50 split. That result should then be followed by two other messages:

@rcpclass X01, S080, M01, F004, RED, 000, CFRM, S075:S080:050:050

@rcpclass X01, S075, M01, F004, BLK, 000, CFRM, S075:S080:050:050

In the case of an OPEN offer, if you receive more than one ACPT message, you must accept the first message received.

We will have  a period in which the market is open: 7 to 10 pm on Thursday, Jan 13. The best way to see what the state of the market is is by running a search on Twitter on “@rcpclass”. You might also want to add to the search the market that you are in to just see what is going on in your market.

There is no need to be in the market for the full three-hour window. You can make an offer, exit for an hour and come back to see what has happened.

Week 3: Card Game Simulation, Thursday, January 20, 7 pm to 10 pm

We will play the card game simulation again.