We are asked to write a TWO-PAGE write up to the understanding of the file attached combined with a...

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We are asked to write a TWO-PAGE write up to the understanding of the file attached combined with a experiment conduct in class. During the class, we are divided into buyers and sellers, but each one act individually. As a seller, I'm asked to sell a product, and we are given the cost of the certain product. During the trade, a seller can offer a price and a buy can bid. If they can match, the transaction is complete. And we conduct several round of trade to see the scatter plot of the finished transaction (final price of the product).
	
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Class experiment instructions Double Auction 
 
Introduction 
Today we are going to conduct a sequence of markets in which some of you will be buyers and some of 
you will be sellers.  The commodity to be traded is divided into distinct items or “units.” We will not 
specify a name for the commodity; we will simply refer to units. 
 Trading will occur in a sequence of periods.  The prices that you negotiate in each trading period 
will determine your earnings, in dollars and cents.  You will keep track of these earnings on the record 
sheet provided.   
 We will proceed in the following way.  Everyone should first read the instructions regarding how 
buyers and sellers compute their earnings.  Then we will go over how sales and purchases are arranged 
in the pit market and then how they are arranged in the oral double auction market.  Importantly, these 
instructions explain how both sellers and buyers calculate earnings and negotiate contracts.  In each 
market, however, you will be either a buyer or a seller.  Information specific to your roles in today’s 
market will be presented to you at the end of the instructions.  After reading the instructions and 
reviewing your specific information, I will give you a chance to ask any questions you might have.  
Then we will begin the first trading period. 
  
Instructions for Sellers 
 
Seller Costs 
Sellers record their sales on a sheet similar to the sample record sheet here: 
 
Period 1 
Unit Selling Price Cost of unit Earnings 
  (Column 1) (Column 2) (Column 3) (Column 2 - Column 3) 
Row 1 1   $ 1.50    
Row 2     
2 $ 2.75  
Row 3     
$ 3.15  
3 
Total earnings for Period 1
  
(Row 1 + Row 2 + Row 3)
 
The information on the decision sheet you will be using today is private.  Do not reveal it to anyone.   
 
On the seller’s record sheet, each table will represent a different trading period.  In the period, a seller 
may sell from zero up to as many units as appear on the record sheet.  In this example, the...

Robert · Accepted Answer

Class experiment result 
Suppose there are three units in period 1 and the cost to each unit for the seller is different. More 
specifically, suppose cost of first unit is $1.5, of second unit is $2.75 and that of third units is 
$3.15. In the similar way, buyers are supposed to derive different values from different units. We 
assume that buyers derive value of $6.25, $5.05 and $4 from the first, second and the third unit 
respectively. 
Oral Double Auction Market: 
We first consider the sale of unit 1 in the period 1. Suppose buyer1 bids $3 and the seller 1 asks 
$4. In such a case, there would no agreement between the buyer and seller and the unit 1 would 
not get sold. Now suppose buyer2 bids $3.5 and seller1 still asks for $4. Here also buyer’ 
willingness to pay do not matches with seller’ willingness to sale, so trade would not occur.  
Finally, suppose there is buyer3 who bids $4, given seller 1 asks for $4. In this case, buyer’ 
willingness to pay matches with seller’s willingness to sale, so the unit 1 it sold to buyer3. In 
other words, we would say, “Seller 1 accepts buyer 3 bid”.  
This situation has been explained in figure1 below. In the figure1, seller’s asked amount has 
been fixed at $4 and bids by different buyers have been represented by upward sloping graph. At 
point A, bid by buyer 3 matches with price asked by seller 1. So point A denotes trading point 
for unit 1.
Figure1:
Seller’s earning = selling price – unit cost of unit 1 = 4-1.5 = $2.

We are asked to write a TWO-PAGE write up to the understanding of the file attached combined with a experiment conduct in class. During the class, we are divided into buyers and sellers, but each one...

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