Digital Market Simulations

1. Digital Market Simulations Joe Bailey, University of Maryland Chris Dellarocas, Boston University Special thanks to Il-Horn Hann, University of Maryland Gordon Gao, University of Maryland

2. Background • 2007-08: Curriculum change prompted development of new digital markets course at R. H. Smith • MBA-style combination of information economics and two-sided market concepts • Based on lectures, cases • Lots of part-time sections, 3.5h late evening sessions • Needed an additional resource to bring concepts to life

3. Enter: Interactive games • Student teams compete against each other in a series of stylized settings that simulate elements of competition in digital markets • Played at beginning of each weekly session, 40-50 minutes to complete • Allow teams of students to teach digital market concepts to each other • Build excitement and curiosity that stimulates learning

4. Game Structure • Each game is played on a spreadsheet that’s displayed on the projection screen and available to all students • Game has 5-6 rounds • On each round each team has 3-5 minutes to make a relatively simple decision (about the current round’s prices, investments, etc.) • After each round, instructors collect all responses, plug them into spreadsheet and briefly comment • Team that has highest profits at end of last round wins • Winners receive sandwiches the following week

5. Our current list of games • Pricing Information • Network Effects • Lock-In • Two-Sided Markets • Competition among Shared and Proprietary Platforms • Networked Competition with Government Intervention All games and spreadsheets available to workshop participants • Creative commons license • No technical support http://www.quest.umd.edu/~jpbailey/622/

6. Today’s Game: Two-sided markets Suppliers (Content Creators) Consumers Platform

7. Today’s Game: Two-sided markets Content creators care about price but they care even more about the size of the consumer audience Suppliers (Content Creators) Consumers Platform

8. Today’s Game: Two-sided markets Content creators care about price but they care even more about the size of the consumer audience Consumers care about the number of content creators but they care even more about price Suppliers (Content Creators) Consumers Platform

9. Today’s Game: Two-sided markets Content creators care about price but they care even more about the size of the consumer audience Consumers care about the number of content creators but they care even more about price Suppliers (Content Creators) Consumers Platform • Rules: • Initially, each group has 10 suppliers and 100 consumers. • In each round you release a new version; you are able to sell new releases of the software to all existing customers (suppliers and consumers). • In each round your group will charge two prices: one price for the supplier and another price for the consumer. • The supplier and buyer price shall be an integer from $0 to $40. • Assume the average cost (think of it as SG&A) for each customer (suppliers and consumers) is $10. • The goal of this game is to have the largest cumulative profit after 5 rounds.

10. Let’s Play !