Instructions
In this study, you will be grouped randomly and anonymously with
another 2 participants. One of you will be randomly assigned to be the
buyer and the other 2 the sellers. Sellers and the buyer can trade for
3 periods. Prior to making any decision, you will learn your role,
which will remain unchanged for all periods.
At the beginning of each period, each of you will receive 50 points.
The sellers will begin by privately choosing a price
(from 0 to 50 points) and a quality grade for their products.
Then the buyer will have the chance to purchase from one of the sellers
at the price listed. Before purchase, the buyer will not observe
grades. After purchase, the price and grade of the bought unit will be
revealed to all. The grade can be high, medium, or
low; higher grade costs more to produce and is worth more to
the buyer. The table below shows production costs to the sellers and
values to the buyer of different grades:
| Grade |
High |
Medium |
Low |
| Production Cost to Sellers |
30 |
20 |
10 |
| Value to the Buyer |
35 |
25 |
15 |
The buyer can buy up to 1 unit of the commodity during a period and
each seller can produce up to 1 unit in a period. Unsold units
are not produced and hence incur no cost.
The period payoff for the buyer is:
Buyer's period payoff = 50 points + value of the grade purchased -
seller's price
The period payoff the sellers is:
Seller's period payoff = 50 points + seller's price - cost of the grade
produced