A Digital Library for Microeconomics Education

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Competitive Market Experiments

Competitive market experiments are a valuable demonstration of one of the key results from the microeconomics curriculum. In a market with many sellers and many buyers, the competitive pressures among sellers and among buyers lead to a stable market price and to an efficient allocation of the commodity.

In the competitive market model, there are many buyers whose aggregate demand is qD = D(p). There are also many sellers whose aggregate supply is qS = S(p). In the most common case, demand decreases as price increases and supply increases as the price increases. Under these assumptions, if the demand exceeds the supply when the price is zero, then there is a unique price p* where the demand and supply are equal. The equation for this is that D(p*) = S(p*).

Figure 1: Competitive market experiment

Figure 1 shows the supply (S), the demand (D), the competitive equilibrium price p*, and the competitive equilibrium quantity of trade q* for a sample market. MarketLink experiments that test the competitive equilibrium predictions have been prepared for both the double auction and the posted offer auction.

To add the configuration for the double auction competitive market to your profile, click on the button below.

To add the configuration for the posted offer competitive market to your profile, click on the button below.

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