# TEACHING ECONOMIC THEORY: A CLASSROOM EXPERIMENT ON OLIGOPOLY

Teaching economic theory at undergraduate level presents some difficulties, the more traditional is the role of calculus, Allmen and Brower (1998) present an interesting survey. However, there are other kinds of challenges. Some economic concepts are difficult to “fully” understand for undergraduate students. For example some concepts of market equilibrium as Nash-Cournot, Walrasian and Monopoly equilibrium. These usual concepts are explained at a theoretical level and some exercises are made using calculus or graphical analysis. However, to understand those concepts at an undergraduate level is not necessary a deep knowledge in calculus. These concepts can be much easily understood if students are (complementary to theoretical explanations and exercises) allowed to “live” market situations such as to choose the level of production, to experience gains and losses playing with other students... They naturally can converge to a collusive situation or competes fiercely depending of the market framework considered in the game. They can try to collude and see how sometimes deviators can kill the agreement. They can taste the dynamic in a market and the trade-off between individual and group interest, i.e. to cooperate or deviate.

We have run a classroom experiment on oligopoly with students enrolled on basic and medium level microeconomics courses. This experiment is performed outside the computer lab and it runs over an entire academic semester. Students play a game in which they compete in a symmetric quantity setting environment. The market is open for a whole semester divided into twenty rounds (one per week). The ten first rounds are played under a specific market environment called treatment I, in which there are no incentive to behave cooperatively. Treatment II are considered in the last ten rounds, and it allows for cooperative behavior but also for individual profit-maximizing behavior. Thus, the student has to balance these two opposite pressures in order to maximize his/her utility function. In each background level players are divided into seven markets of ten players each. Thus, one hundred forty students play the classroom experiment. Students decide their output at any time from Monday to Friday: There is no requirement to choose a strategy at any particular time over these five days. Under this environment, players can cheat each other before the strategy is chosen. Hence, it is possible for players to take into account not only economic information but also sociological concerns that may modify the final output decision.

References

Von Allmen, P., and G. Brower. 1998. “Calculus and the Teaching of Intermediate

Microeconomics: Results from a Survey.” Journal of Economic Education 29: 277-284.