Chapters

* Title * Contents * Introduction * Place * System * Design * Using * Future * Bibliography

Sections

* Using * Composite_Story * Behavior * Supply_and_Demand * Trade * Central * Externalities * Chicken * Monopolies * Geography * Money

Supply and Demand
Where do prices come from? This question is one of the oldest and most fundamental ones in Economics. The classical view of price is that it directly reflects cost of production (Smith, 1776). If A costs twice as much to produce as B, A's price will be twice as high. Assume, for instance, that A's price was three times as high. The higher profitability of making A would draw producers toward A increasing its supply. This shift would push prices back towards a 2:1 ratio.

A modification to the above model is necessary to understand what goes on in MarketPlace. In MarketPlace the cost per unit of production changes with the quantity made. Additionally, it's important to realize that this analysis assumes that the production of these items can be increased and shrunk. The price of a Honus Wagner baseball card reflects the fact that they aren't making any more of it (or perhaps him). For the MarketPlace world, however, this assumption is fine.

So how does this all work out in MarketPlace? With the relatively inexperienced players who've tried the game so far, the classical analysis modified to account for economies of scale works well. Players bid more for commodities that are in short supply during auctions to assure themselves of supplies. Players who specialize in a certain commodity can afford to undercut their less specialized competitors. Come the next turn, players tend to shift into production of the items which are in short supply.

You might expect to get an overshoot effect as too many players shift into production of the high-priced commodities. In tests, however, overshoots have been small. Since players in MarketPlace can see and react to the factory configuration decisions of the other players, players can see an over-reaction building and avoid it.



Greg Kimberly/gregkimb@gak.com