Experiment 2: The Potato Market Running the experiment

Protocol

You need an even number of participants for this experiment. They will be assigned a role between potato producer and retailer. You should choose some students to be logistics assistants. Some of them will check the validity of transactions. Another assistant will enter the data in the contracts to the Excel template while running the experiment (see materials and resources). It’s recommended to have at least 5 assistants per each 70 participants.

It’s an exciting practice to write down theoretical predictions in a sealed envelope to open it after the experiment. Remember you should print individual cards with roles and market conditions for your participants before the experiment. You will find them in the materials and resources section. You should give your students the next instructions after preparing the experiment:

• We will simulate 10 potato market days in this activity. Each round will last 5 minutes.
• I need some voluntary assistants for this experiment. (You may choose your assistants now).
• Half of you will be potato growers; and, the rest of you will be retailers. Growers bring potato sacks from their crops to sell them in the market to retailers.
• Our assistants will give you now:
  1. The card with your role and two units of potato sacks.
  2. If you are potato grower, you will see the costs you had to cover to produce each potato sack.
  3. If you are a potato retailer, you will see the price at which you know you are able to resell each potato sack in your store.
  4. Two contract formats to register any transaction between retailers and growers. They will be given to growers only.
  5. An accounting format you may use to keep track of your individual performance in each day.
• You don’t have to trade both potato sacks if you don’t want. You can choose to sell or buy the number of sacks you prefer (between zero and two).
• However, each transaction you make, will determine earnings for you:
  1. For potato growers, your earnings will be the difference between the price you negotiated and your production costs. (Give an example with prices).
  2. For retailers, your earnings will be the difference between your reselling price and the negotiated price with growers. (Give an example with prices).
• So remember, once I open the market you are free to stand up and negotiate with others.
• Once you find a deal you like, you will have to:
  1. Register your individual earnings in your accounting format.
  2. Fill and formalize your contract format with one of the assistants in the front table. They will check you have enough potato sacks; and, they will mark them as “sold” in your individual cards (each round).
• Once time is over, no more transactions will be received in the table; and, they will not count.

Next, numerate your students between one and two. Numbers one will have a role; and, the rest will have the contrary.

Run the first 5 rounds of the experiment with a timer. Give your students the next instructions in round 6:

• From now on, a tax policy will be applied to producers. If you are a potato grower, your marginal costs will be the ones described in your cards plus (mention the tax amount and an example with any marginal cost).
• The assistants will register and confirm this operation during transactions. Take that into account. Therefore, earnings for growers will be the difference between the negotiated price and their marginal costs plus the tax (give a numeric example).

Class discussion

Once you run the 10 rounds, you may begin with a discussion about the students’ experience during the activity with some of this questions:

• Did any of you didn’t trade anything during a round? Why? (Maybe you could direct this answers to the complete-information assumption).
• What conditions may be different from this experiment in a real potato market? Do you think they are relevant to the results?

Meanwhile, your assistant will have some minutes to enter the lasting data to the Excel template. The document will provide you two graphics: average prices of transactions across rounds, and quantity of traded sacks across rounds.

• What strategy did you use to find people to trade with? Did it change across rounds? (How does learning relate to information in a market? May this be reflected in the graphs?).
• What do you think would have happened if every one of you had to trade at least one unit of potato (mandatory)?
• What would have you done if transactions were subject to a minimum price: like (mention example price)?

Materials and resources