Econ: Candy Market Structures


candy-sim-market-structures-2016
The class was divided into the four groups. Through participation in four rounds of candy buying and selling, students will simulate four market structures: perfect competition, monopolistic competition, oligopoly, and monopoly. By analyzing each round in the simulation students will derive the characteristics of the market structures from their own experience.

Perfect competition have about 15+ students, monopolistic competition have 10+ students, oligopoly have 3 students, and monopoly will have 1 student. Each student receives a specific type of candy. Everyone in perfect competition gets a Hersey kiss. Everyone in monopolistic competition gets a dum-dum lollipop. Everyone in oligopoly gets a laffy taffy. And the monopoly gets a Kit Kat.

I explained that I will buy a piece of candy from one firm in each market. I will pay somewhere between 5 cents and 25 cents and I will allow them, the business firm/student, to come up with the price of their candy. I explained to them to make sure they think about it before they decide on a price. Choose their price strategically. They wrote down their price on a blank sheet of paper, nice and big so I could read what their price is, but not to let anyone see it before I asked them to reveal their selling price. Perfect competition and monopolistic firms cannot talk among themselves, oligopoly firms can talk among themselves.

Based on this simulation we identified the following market characteristics.

Perfect competition consists of many producers who provide an identical good. There are low barriers to entry and exit from the market. Producers have no control over price.

Monopolistic competition is a market in which many producers provide differentiated goods. There are few barriers to entry and exit from the market. Producers used nonprice competition to differentiate products and build brand loyalty. They have some control over prices.

An oligopoly is a market dominated by a small number of producers who provide similar or differentiated goods. There are high barriers to entry and exit from the market. Producers set prices based on other producers’ pricing decisions. Therefore they have some control over prices.

A monopoly is a single producer providing a unique product. There are high barriers to entry and exit from this market. The producer has significant control over prices.

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