Source for pie images: iStock
Welcome to the ‘Buying and Selling’ Game (Business Version)
In April, I am running the business version of the Buying and Selling Game. I am currently alternating monthly between the original version and the business version. I introduced the business version in my post/video 'Buying and Selling Game (Business Version) Explanation Video'. The video explains how the game is played and how a winner is determined. The business version was also used for Challenge 6 of the 2021 Economics Challenge series. I recommend that you look at the video as well as at least one of the previous contests to get a better idea of how to play.
How to play?
The ‘Buying and Selling’ Game (Business Version) involves two simple steps.
- Choose the quantity of each good you want to buy or make.
- Choose the selling price of each good you bought or made.
All the information you need to know to play the game is provided in the question; i.e. no external research is required as all costs and demand estimates are hypothetical.
All entries must be made in the comments section of this post.
Each account is only permitted one entry.
Objective of the game
The objective of the game is to make the highest profit from the sale of the goods you have bought or made. If two participants make the exact same profit, the participant that entered first wins.
If nobody makes a profit (i.e. nobody enters the contest or if all participants make a loss), the prize of 30 Hive will be rolled over to the next contest. Therefore, the prize for the next contest will be 60 Hive.
Each good has 100 potential customers. Each customer can buy up to 6 items of a particular good if he or she values the goods above the selling price (i.e. has a willingness-to-pay higher than the selling price). Each customer is only interested in one type of good. Therefore, selling more types of goods increases the potential number of customers. For example, selling three types of goods grants access to 300 potential customers.
Demand for the goods for each customer is determined using triangle distributions. The question provides the minimum, maximum, and mode willingness-to-pay for each good. Demand is further adjusted for diminishing marginal utility using a fixed percentage adjustment. The demand curve is the summation of demand of all potential customers. See example of triangle distribution below. A sample demand curve is shown later in the post.
Selling Price Distribution
Each customer has diminishing utility (diminishing willingness-to-pay as more goods are bought) for each good. For example, a customer may have a willingness-to-pay of $1.00 for the first item, $0.80 for the second item, $0.60 for the third item, $0.40 for the fourth item, $0.20 for the fifth item, and $0.00 for the sixth item. The question will state this diminishing utility as 20% (i.e. 0.2/1 = 20%), which is applied linearly. If a participant prices the good at $0.50, the customer will buy three items, as the customer values the fourth item below $0.50 (i.e. $0.40).
The business will have overhead costs, which need to be deducted from the budget before goods can be bought. There are zero transaction and transport costs.
If some goods remain unsold, they will be treated as being wasted, which is equivalent to being sold for $0. This could occur if a participant prices a good too high.
What information is provided?
- All the goods that can be bought in the game are provided.
- All costs (i.e. costs to buy/make goods and overhead costs) are provided.
- Any special purchasing requirements are provided. For example, a good may need to be bought in fixed quantities.
How are the results of the game determined?
A Microsoft Excel Model is used to determine the demand of each good. The costs, quantities bought, quantities sold, and prices will be used to calculate the profits made by each participant. In the results post, the calculation of the demand and profits will be presented in a video.
The account with the winning entry will receive 30 Hive and the first 12 entries will be given upvotes. The winner will receive an additional 5 Hive, if he or she obtains a higher profit than the model’s internal estimator.
Let the contest begin
For Contest 28 of the Buying and Selling Game (Business Version), participants will be running a pie shop.
Participants will be able to sell three types of pies.
- Apple Pies
- Blueberry Pies
- Pecan Pies
The participants will only be able to purchase pies in batches of 5. The costs of purchasing each batch, the average cost per pie and daily overheads are provided in the tables below.
Note: Budget includes Daily Overhead. If the budget is $250 and the daily overhead is $50, there is $200 remaining to purchase pies.
The parameters to determine demand are provided in the table and graphs below.
Note: The graphs for the triangle distribution are based on the minimum, maximum, and mode prices for the first pie a customer buys. The demand curve is adjusted to include diminishing utility expressed in the last column of the table. This will affect the elasticity of demand.
It has been assumed each type of pie has 100 potential customers. Each customer will potentially buy a maximum of 6 pies. Therefore, it is possible a maximum of 600 of each pie could be sold. The Figure below contains a sample of a possible demand curve that could be generated by the model using the parameters described in this question.
Possible Demand Curve
Note: Sample demand curve for pecan pies. Actual demand curve will be determined in the results post.
For this contest, I expect to see entries made in the following format:
Quantity: XXX Selling Price: XXX
Quantity: XXX Selling Price: XXX
Quantity: XXX Selling Price: XXX
Quantity: 45 (9 batches) Selling Price: $10
Quantity: 5 (1 batch) Selling Price: $30
Quantity: 40 (8 batches) Selling Price: $20
The closing date and time for this contest is 6PM coordinated universal time (UTC) 30/04/2022. Responses after this time will not be accepted. The answers will be provided in the results post along with the video containing the generation of demand and profits using the model.
I hope everyone has fun and enjoys the business version of the contest. If you have any questions, feel free to ask in the comments section.
If you want to read any of my other posts, you can click on the links below. These links will lead you to posts containing my collection of works. These 'Collection of Works' posts have been updated to contain links to the Hive versions of my posts.