Description of the Experiment

The experiment session takes approximately 1 hour to complete.

The experiment comprises 15 experimental "Years" - running from 1st January 2000 to 31st December 2014.

For simplicitity each year comprises 12 months, each of 30 days (making a total of 360 days in each experimental year).

There are 7 participants in a market for "Units".

Three of the participants are retailers of units. A retailer seeks to purchase a defined number of units in the market, for later resale to a "customer" at a profit.
Four of the participants are suppliers of Units. Suppliers are seeking to sell units to the retailers at above their supply cost, thus making a profit.

You are playing the part of a retailer.

As a retailer you are seeking to purchase a targeted number of "units" each period give to your customer at the end of each period. The customer is "automatic" in the sense that the transfer to the customer occurs automatically on 31st December each year.

At the start of each period you are informed of the number of units your "customer" wants at the end of the period.

Your task is confined to seeking to purchase the required number of units in the market.

There is A PENALTY of $57 per UNIT for not fully meeting your customers order. The penalty is applied for each unit you are short from your target at the end of the year. The penalty rate is the same for all retailers.

Units survive for a single period only. Any units remaining in your account at the end of the year after the customer's sale quantity has been supplied simply disappear. They cannot be used in following years.

Thus your goal is to purchase as close to your targeted number of units as possible. If you do not have enough units to meet your customers order, you will be penalised (and your pay will be lower than it might have been).

If you have too many units, you have paid money to purchase units which are just thrown away, and again your pay is lower than it might have been.

Although all retailers can both buy and sell units, the natural position is for Suppliers to be net-sellers and Retailers to be net-buyers. However a Retailer who had bought more units than can be resold to their "customer" at year end can attempt to resell their surplus to other retailers while the year is still running.

Your task is to purchase the required number of units whilst keeping as much of your opening cash float as possible.

The task for all participants is to have as much money as possible at the end of the experiment.

To be able to commence purchasing Units, each retailer is given a cash float at the start of the experiment.

EXAMPLES:

EXAMPLE 1: Suppose a retailer was told that their customer had ordered 2,500 UNITs on 31st December 2006, and the penalty rate was $60 per unit short, and on 31st December the retailer had 2,400 units in their account. Under this circumstance the customer would take all 2,400 UNITs, and the retailer would pay a fine of 100 units * 60 = $6,000

EXAMPLE 2: If a retailer's customer had committed to take 2,500 Units on 31st December 2006, and on the 31st Dec 2006 the retailer held 2,600 Units, then their customer would take 2,500 Units. The 100 Units held surplus would "rot in the shop" and disappear for no value.

The next few pages of instructions are to introduce the trading screens to you, and to give you instructions on getting logged into the experiment.

When you have read the above, please proceed to the next page.

Next Page (The Retailer Trading Screen)

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Last Modified: 18 October 2007