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1. conservative or aggressive bidding behavior and this 7 Student comments regarding learning objectives from the New Mexico State University game are included in Appendix 3 could lead to winner s curse or even perhaps loser s curse if he she is too conservative They must decide whether they should bid a price up to their true underlying valuation or if they should stop bidding and enter another event Another important decision is whether to enter numerous auction events and bid simultaneously or not The risk the players face is that they may end up with nothing or perhaps too much and run out of cash The situation could be more complicated if bidders resort to sniping i e to bidding in the last seconds of the auction event to steal away the auction from the current active bidders As you can see as a bidder there are many aspects to the game and this could lead to an infor mation overload and cause stress to the participants We feel this is an important experience because in reality electronic markets can be quite stressful and traders should be able to handle such situations For example in the Dutch flower markets a trader can be physically present in one trading room and be trading simultaneously in other flower markets either on site off site or completely electronic 6 Extensions and Variations Compared to what we have described here simpler and more complex versions of the game are possible Wit2. namely 1 How much grain to buy 2 How much flour to sell 3 How much flour to make for the next day sales 4 Whether to buy additional capacity 5 Whether to set up forward events to sell and or reverse events to buy it s probably a good idea to set up forward events to sell first You may use the table on the following page to keep track of your accounts Rules 1 You must not communicate verbally with other pro ducers or consumers except to verify a trade You may use the messaging system 2 You must have more than one trading partner Teich et al The Bread Flour Grain Trading Game Bidding in and Designing Auction Events 48 INFORMS Transactions on Education 5 3 pp 42 54 2005 INFORMS Production for Day Flour inventory Grain inventory Cash on hand next day sales or inv Production capacity Flour sold Grain bought 0 beginning 700 500 9 250 XXXXXX 2 000 XXXXXX XXXXXX 1 2 3 4 5 6 7 8 9 3 Include the Day when you name your event eg Daylfloursell Day2grainbuy etc so bidders know which event is active when 4 You may want to verify that you bought or sold with the party on the other side via the messaging window 5 Grain auctions close on the hour and half hour bread auctions close 10 past and 40 past the hour and flour auctions close 20 past and 50 past the hour on the times specified 6 You will be dealt randomly shux n lux cards at var ious times throughout the gam
3. Mex pp 2005 02 18 31 system selflourdaytt Auction closed Your bid 1904 won in the auction Auction Owner provides details of auction Messaging system in bottom window Teich et al The Bread Flour Grain Trading Game Bidding in and Designing Auction Events 52 INFORMS Transactions on Education 5 3 pp 42 54 2005 INFORMS NegotiAuction Mozilla Firefox HO T aa 502 Proxy Error NegotiAuction o Wednesday 15 Jun 2005 12 52 54 PM z My Auctions Browse open Auctions Create a new Auction Closed Auctions Templates w SYSTEM Auction grain New auction Auction grain started wex 7042008 02 16 31 system selfourday11 Auction closed Your bid 1904 won in the auction x L Firefox Help L Firefox Support L Plagin FAQ L 502 Proxy Error NegotiAuction Auctions Wednesday 15 Jun 2005 12 55 36 PM My Auctions Browse open Auctions Create a new Auction Closed Auctions Templates Bidder requests price and makes bid Teich et al The Bread Flour Grain Trading Game Bidding in and Designing Auction Events INFORMS Transactions on Education 5 3 pp 42 54 2005 INFORMS 53 NegotiAuction Mozilla Firefox File Edit View Go Bookmarks Tools Help S eo Ix Q A O QD Li heos imoxmodiee ruraloginjo BY O co Gh negotiouctions 2 Firefox Help Q Firefox Support L Plug in FAQ 3 502 Proxy Error L NegotiAuction o in Reyister Wer Auction
4. and services faster purchasing cycles shorter order processing and fulfillment cycles Suppliers on the other hand desire new distribution channels more cus tomers and new means to increase sales reduce excess inventory and reduce the cost of goods services sold Both parties seek lower transaction costs The use of web based electronic trading sites is hoped to generate these benefits for both buyers and suppliers Lucking Reiley 1999 and Kambil and Van Heck 2002 provide an interesting discussion of the earliest Internet and web based trading sites Today many Internet trading platforms catering both for B2C and B2B markets exist Examples for B2B markets include Ariba Global Exchange Perfect Combinenet Emp toris and Verticalnet among others Because of the increasing popularity of electronic market systems it is important that we teach our students not only of the existence of such systems and methods but also that we train them in the art of bidding in and design ing such online auction events Games and other experiential learning devices have been found useful 42 instruments for such purposes Farr and Felder 2003 MIT Procurement Game Portal In this paper we describe the Bread Flour Grain trading game that we developed and provide the accompanying teaching materials required to run the game The game can be played online using an appro priate web based auction system It consists of play ers who represent b
5. be locked in on your bid otherwise you may be outbid later 5 Setting Up Your Own Event Hit new auction Fill name of event description etc Fill time of close currency Quantity etc Insert Reserve Price Define Criteria and associated Discounts if any Define Constraints if any 7 Find and invite bidders to event Rate them on attributes optional 8 Go to ranks insert weights on criteria then insert bid der penalties on individual bidders optional 9 Save your event as a Template to use for the next round Dor wnr Appendix 3 Student Comments Regarding Learning Objectives Mainly I learned that you have to be careful with the assumptions you make in the marketplace Even though prices appeared to justify my grain purchase at the end of day 20 I really had no way to know that prices would even tually plummet thereby causing me to loose a large amount of money I also learned that timing is critical Most of the players that did well were in the game for a long period Teich et al The Bread Flour Grain Trading Game Bidding in and Designing Auction Events 50 INFORMS Transactions on Education 5 3 pp 42 54 2005 INFORMS of time on both days They were able to react much sooner to changes in the market and minimize their losses In my case I was literally dead in the water because I could not react to the price changes soon enough I think the learning objectives for the game should be t
6. besides the cost of the grain plus a sum to you of 5 Dollars per sack sold This subsidy remains but is subject to revision throughout the game and you will be informed if it hap pens Your production capacity currently is 2 000 sacks of flour per day but if you wish to purchase more capacity you may do so at a cost of 25 000 Dollars per 1 000 sacks of extra capacity or you may request the government to run an auction to gain capacity The old price you received for your flour under the old fixed price system was 12 5 Dollars per sack The old price you paid for grain was 8 Dollars per con tainer But these prices are totally irrelevant because the government has decided that you will now use the Negoti auction system a dynamic pricing mechanism to determine how much you pay for the grain and how much you receive for the flour Your beginning accounts are as follows Inventory Flour 700 Sacks Inventory Grain 500 Containers you stocked out of grain and borrowed some from a competitor You must pay them back ASAP Cash on Hand 9 250 Username and Password Flour31 An accounting spreadsheet is available from the gov ernment jteich nmsu edu You may buy it from them This is a cash based society and you may not go negative in your cash account Try to maximize your Cash Account The value of the unsold Flour and the grain inventory will be determined at the end of the game Everyday you have a number of decisions to make
7. game but a back up had been set up in advance Four WebCT chat rooms were used as trading pits for each commodity The players entered the chat room and negoti ated haggled and traded This added a new twist to the game and allowed the students to compare two different trading mechanisms 5 The software also has other features which could be used in an enhanced game including Negotiable Bid Issues NBIs Bidder Attributes Constraints Bidder Rankings and Bidder Penalties See 6 In designing an auction the auction owner describes the good to be bought or sold and specifies the quantity She then selects either the open or closed format and determines how the bids appear to the bidders Reservation prices possibly different for dif ferent quantities quantity discounts product descrip tions lot size requirements and other miscellaneous items are also inserted at the onset Screenshots of the system are in Appendix 5 4 Setting Up the Game Prior to playing the game the instructor should print out the roles see Appendix 1 for each player and assign each with their own username and password Each student will play a role individually We recom mend that the instructor sets up these accounts prior to the game on the software of their choice Participants in the game then need training in the use of the software This training session should be same time same place Basic concepts such as differ ences between for
8. 800 200 12 600 XXXXXX 2 000 XXXXXX XXXXXX 1 2 3 4 5 6 7 8 9 5 Grain auctions close on the hour and half hour bread auctions close 10 past and 40 past the hour and flour auctions close 20 past and 50 past the hour on the times specified 6 You will be dealt randomly shux n lux cards at var ious times throughout the game You will keep track of the impact on the books 7 There are a total of 40 trading days in the game The first day begins at 10 a m on Dec 2nd and there are two days every hour until 8 p m when Day 20 ends Day 21 begins at 10 a m on Dec 3rd and these continue until 8 P M when Day 40 ends 8 The best trader from each role Flour Bread and Grain will be awarded 5 extra credit points for the game That is one from each for the combined classes three in total not six 9 Please manually close all of your auctions at the clos ing time If you set the time and expect them to close auto matically they will remain open because of an auto extend feature which automatically extends an auction event 4 min utes when bids continue to stream in 10 You may verify your trades with your trading part ner via the messaging window or via the appropriate chat trading room in Web CT 11 You will keep track of your own financials and inventories by using a type of table shown below or by making your own spreadsheet or purchasing one from the government Appendix 2 Negotiauc
9. Vol 5 No 3 May 2005 pp 42 54 Issn 1532 0545 05 0503 0042 N FO RMS Transactions on Education inf HN pot 10 1287 ited 5 3 42 2005 INFORMS The Bread Flour Grain Trading Game Bidding in and Designing Auction Events Jeffrey E Teich Management Department New Mexico State University Las Cruces New Mexico 88003 USA jteich nmsu edu Hannele Wallenius Department of Industrial Engineering and Management Helsinki University of Technology POB 5500 02015 HUT Finland Hannele Wallenius hut fi Jyrki Wallenius Helsinki School of Economics POB 1210 00101 Helsinki Finland walleniu hkkk fi CC sourcing and more specifically e procurement have become part of standard industry practice in recent years with the use of forward and reverse auction events Training materials and games to teach partici pants to bid in and design such events however has been limited In this paper we describe a Bread Flour Grain trading game we developed for instructors to use with student groups We also provide accompanying materi als and suggestions for running and debriefing of the game The game imparts design and bidding experience which students can then apply to real world auction events It is appropriate for group sizes ranging from six to sixty 1 Introduction In a global competitive economy companies are con stantly searching to improve the efficiency of trading In general buyers seek lower prices for goods
10. We thank an anonymous reviewer for this suggestion Teich et al The Bread Flour Grain Trading Game Bidding in and Designing Auction Events 46 INFORMS Transactions on Education 5 3 pp 42 54 2005 INFORMS are randomly drawn by participants and have impacts on the cash position inventory or current capacity of the players For example one of the cards states Mice entered your warehouse and ate half your inventory Advanced players may on their own or with encouragement enter into other player s markets by buying certain commodities at a low price and selling them later on at a higher price For example a flour producer may buy bread and sell it or barter it to a grain producer for a profit Instructors may wish to use a variety of trading mechanisms in addition to forward and reverse auc tions for the game As was the case in the New Mexico State University games chat rooms could be used as trading pits for each commodity where some infor mation is public and some is private messaging Stu dents could also trade live same time same place without the use of any computer support Addition ally call markets or continuous double auctions could be set up Students could also meet with their com petitors in the same role and attempt to agree on a market design which they could then use for a period of time The mechanisms used could then be com pared and contrasted during debriefing Many real world a
11. Wednesday 15 Jun 2005 01 00 04 PM Welcome bread31 My Auctions Browse open Auctions Create a new Auction Closed Auctions Templates Auction Information FS Product view Auction type Forward Quantity units cases Current quantity 1000 Owned by bread31 Lot Size Restriction 10 Current revenue 20700 Opened 15 06 2005 12 54 04 PM Price units Last calculation 15 06 2005 12 59 16 PM Closing 6 days 23 hours 50 minutes Bid IncremenvDecrement 1 Hpi Product bread Open yes Description Tasty bread for sale Bidders count 3 b TI X1O 8 stiry Quantity 1000 View Edit 1908 grain32 Auto 500 21 Active 15 06 2005 12 58 30 PM 1909 grain33 Auto 200 21 Active 15 06 2005 12 59 15 PM 1907 grain31 Auto 1000 300 20 Semi active 15 06 2005 12 57 40 PM About us a Messages Updated as of Wednesday 15 Jun 2005 12 59 54 PM s eae 12 54 08 SYSTEM bread sale day 1 New auction bread sale day 1 started x tex eee 01 20 54 SYSTEM Auction grain New auction Auction grain started x X WE Auction Owner watches bids during event 8 What lessons did you learn What do you think the learning objectives should be for this game 9 Do you have any general comments about the game Did you enjoy playing it 10 Do you have any suggestions for me so that we can improve the game before the next play Glossary Definitions and Terminology Auction Owner The initiator of an auction the buyer in a reverse auction and the seller in a forward
12. You may buy it from them This is a cash based society and you may not go negative in your cash account Try to maximize your Cash Account The value of the unsold Grain and the Bread inventory will be determined at the end of the game assume the bread does not get stale while held in inventory Everyday you have a number of decisions to make namely 1 How much bread to buy 2 How much grain to sell 3 How much grain to process for the next day sales 4 Whether to buy addi tional capacity 5 Whether to set up forward events to sell and or reverse events to buy it s probably a good idea to set up forward events to sell first You may use the table on the following page to keep track of your accounts Rules 1 You must not communicate verbally with other pro ducers or consumers except to verify a trade You may use the messaging system 2 You must have more than one trading partner 3 Include the Day when you name your event eg Daylgrainsell Day2 Breadbuy etc so bidders know which event is active when 4 You may want to verify that you bought or sold with the party on the other side via the messaging window Teich et al The Bread Flour Grain Trading Game Bidding in and Designing Auction Events INFORMS Transactions on Education 5 3 pp 42 54 2005 INFORMS 49 Production for Day Grain inventory Bread inventory Cash on hand next day sales or inv Production capacity Grain sold Bread bought 0 beginning
13. auction Bid Increment Decrement the desired increase reduction in price or total cost from one bid to the next Bid Status Active Inactive Semi Active Were the auction to close at this very moment the active bids are the winning bids the semi active bids are partial winners receiving a partial quantity desired inactive bids are loosing bids Forward Auction An auction format with one seller many buyers and ascending price Information Architecture The set of rules that determines what information is or becomes available to which auction participants during the auction Multidimensional Auction Often synonymous to multiattribute multiple unit auction Sometimes used to refer to combinatorial bundle auctions with multi ple heterogeneous goods Multiple Issue Reverse Auction Also referred to as multiattribute auction A procurement auc tion where generally multiple units of merchandize varying in terms of quality warranty delivery terms etc are demanded Multiple Unit Quantity Auction An auction where multiple units of a homogeneous good service are being auctioned The bidders may or may not be limited to supplying one unit per bidder In the latter case bids consist of price and desired quantity Price Discrimination Buyer pays different prices for different suppliers for the same good service Quantity discounts may also be regarded as a form of price discriminati
14. ditional Teich et al The Bread Flour Grain Trading Game Bidding in and Designing Auction Events INFORMS Transactions on Education 5 3 pp 42 54 2005 INFORMS 47 Production for Day Flour inventory Bread inventory Cash on hand next day sales amp Inv Production capacity Flour bought Bread sold 0 beginning 500 400 10 250 XXXXX 2 000 XXXXXX XXXXXX 1 2 3 4 5 6 7 8 9 capacity 5 Whether to set up forward events to sell and or reverse events to buy it s probably a good idea to set up forward events to sell first You may use the table on the following page to keep track of your accounts Rules 1 You must not communicate verbally with other pro ducers or consumers except to verify a trade You may use the messaging system 2 You must have more than one trading partner 3 Include the Day when you name your event eg Day1breadsell Day2flourbuy etc so bidders know which event is active when 4 You may want to verify that you bought or sold with the party on the other side via the messaging window 5 Grain auctions close on the hour and half hour bread auctions close 10 past and 40 past the hour and flour auctions close 20 past and 50 past the hour on the times specified 6 You will be dealt randomly shux n lux cards at var ious times throughout the game You will keep track of the impact on the books 7 There are a total of 40 trading days in the game The first day begins a
15. e You will keep track of the impact on the books 7 There are a total of 40 trading days in the game The first day begins at 10 a m on Dec 2nd and there are two days every hour until 8 p m when Day 20 ends Day 21 begins at 10 a m on Dec 3 rd and these continue until 8 P M when Day 40 ends 8 The best trader from each role Flour Bread and Grain will be awarded 5 extra credit points for the game That is one from each for the combined classes three in total not six 9 Please manually close all of your auctions at the clos ing time If you set the time and expect them to close auto matically they will remain open because of an auto extend feature which automatically extends an auction event 4 min utes when bids continue to stream in 10 You may verify your trades with your trading part ner via the messaging window or via the appropriate chat trading room in Web CT 11 You will keep track of your own financials and inven tories by using a type of table shown below or by mak ing your own spreadsheet or purchasing one from the government 3 Grain Producer Confidential Instructions SAMPLE You are a grain producer and seller You pay your work ers bread to produce and process the grain You pay them 1 case of bread for every 2 containers of grain they pro duce It takes one day to process the grain after you have purchased the bread So if you buy bread in Day One you may sell the resulting grai
16. e would be happy to incorporate your sugges tions and improvements for the next version of the game and make these updates available at ITE Acknowledgments We acknowledge the assistance of Dr Otto Koppius and Professor Eric van Heck of the Rotterdam School of Man agement where Jeffrey Teich was visiting faculty during 2002 2004 Jeffrey acknowledges the hospitality of the fac ulty and staff of the Rotterdam School of Management during his visit Hannele and Jyrki Wallenius wish to acknowledge the financial support of Liikesivistysrahasto Finland and the Academy of Finland We also acknowl edge Alexander Zaitsev of Moscow State University for soft ware development and assistance in the game and Gabriele Teich for conceiving the game Appendix 1 Bread Flour Grain Game Confidential Instructions 1 Bread Maker Confidential Instructions SAMPLE You are a bread producer and seller You must use one sack of flour to produce one case of bread It takes one day to produce the bread after you have purchased the flour So if you buy flour in Day One you may sell the resulting bread in Day Two In other words you cannot buy the flour and make the bread in the same day The government has generously provided a subsidy for bread production which consists of the payment of all production costs besides the cost of the flour This subsidy remains but is subject to revision throughout the game and you will be informed if it happens You
17. eir tasks We feel however that this reflects a real life trading situation 3 Software Any available basic forward and reverse auction software can be used for the game We use the Nego tiauction software we designed and developed Teich et al 2001 The Negotiauction software offers vari ous options which may be desirable for a quantitative methods course The Negotiauction software is avail able for use with permission from the developers of the software Negotiauction can be used in forward selling or reverse buying situations It is a hybrid combina tion of a web based auction and negotiation system Bidders can be placed in an auto mode where the sys tem suggests to them what to bid what price for a desired quantity to be active in the event Alterna tively they can be placed in a manual mode where the auction owner himself negotiates one on one with the bidder s and when if they converge they should be active in the event Active means that if the auc tion closed at that point in time the bid would be among the winners Inactive means they ve been completely outbid while semi active means they are active with a partial quantity and are next in line to be outbid http www2 fbk eur nl na or contact the authors for the current URL A user s manual is available upon request The software is a prototype and it can crash In fact it did crash during the New Mexico State University
18. emand it may be best to try later Also it was important to stay on people s good side Even though we were doing basic business transactions people s feelings and emotions got in the way Common courtesy goes a long way There were definitely sales skills involved Some people were too pushy and some were too passive I would say that the objectives were the obvious negotiating and auction skills but to specifically include learning about timing sales pitches and supply and demand Appendix 4 Debriefing Questions and Written Assignment Sample Possible Debriefing Questions What is the information architecture used in the designs and their implications Alternatives are open sealed semi sealed or some combination Open book occurs when bidders have access to all bids and bidder names Semi sealed occurs when bidders are told what they need to bid to be active in the event but they don t see the other bids or bidders Was manual mode used for some of the bidders Was there price discrimination in your event How did this occur Did you set up more than one auction for a single closing time How did this impact the result How did you attain information about market prices in general for your product for your raw material What was the bid increment How did that impact the rate of conversion of the bids What was the reserve price Did you snipe while bidding or did others attempt to snipe in your event S
19. h fewer participants the game can be played with only the bread and flour producers If desired the instructor could also implement additional rules for example that a bidder may only bid in one event at a time or a player may only run one event of their own at a time Or perhaps only forward auc tions are allowed Also by varying the beginning inventories cash positions subsidies reference points old prices and the like groups are surely to have different experiences in the game Additionally the starting positions and cost structures could be varied across individual participants It could be possible to play the game with heterogeneous products eg some flour is better than others or heterogeneous produc tion capabilities eg some producers need more grain than others to produce bread due to waste The basic version of the game would score the end ing inventory and capacity at market value how ever for a more advanced play in a course involving capacity planning and inventory control the instructor could change this by introducing spoilage of inven tory over time depreciation of capacity or finite ware house capacity The instructor could also play other roles such as a banker investor the SEC or other reg ulator We have also experimented with random ele ments through the use of shux n lux cards which 8 See Appendix 4 for a set of possible debriefing questions and a sample written assignment
20. itsev 2001 Designing electronic auctions An internet based hybrid procedure com bining aspects of negotiations and auctions J Electronic Com merce Res 1 301 314 Teich J H Wallenius J Wallenius O Koppius 2004 Emerging multi issue E auctions Eur J Oper Res 159 1 1 16 http supplychain mit edu
21. n in Day Two because you pay your workers in advance In other words you cannot buy the bread and make the grain in the same day The govern ment has generously provided a subsidy for grain produc tion which consists of all other production costs besides the cost of the bread plus a sum to you of 10 Dollars per container sold This subsidy remains but is subject to revi sion throughout the game and you will be informed if it happens Your production capacity currently is 2 000 con tainers of grain per day but if you wish to purchase more capacity you may do so at a cost of 25 000 Dollars per 1 000 sacks of extra capacity or you may request the gov ernment to run an auction to gain capacity The old price you received for your grain under the old fixed price sys tem was 8 Dollars per container The old price you paid for bread was 25 Dollars per case But these prices are totally irrelevant because the government has decided that you will now use the Negotiauction system a dynamic pricing mechanism to determine how much you pay for the bread and how much you receive for the grain Your beginning accounts are as follows Inventory Grain 800 containers Inventory Bread 200 Cases you stocked out of bread and owe your workers You must pay them ASAP or they will shut you down Cash on Hand 12 600 Dollars Username and Password grain31 An accounting spreadsheet is available from the gov ernment jteich nmsu edu
22. niping is bidding at the last moment to try to steal the auction win away from the current highest bidder Did the reporting of the old prices in the case bias the game by providing reference points Did a price equilibrium emerge after a few rounds Could you think of a more efficient market mechanism for buying selling these three products MGT 512 10 Point Assignment Bread Flour and Grain Game Play the bread flour grain game on Dec 2nd and 3rd Your performance will be compared to the performance of the other players who produce the same product as you do Performance will be measured by the number and size of trades value of the cash account size of capacity and inven tory levels as well as the variety of event types you used open vs closed events manual vs auto modes forward vs reverse bidder penalties etc Please respond to the fol lowing items in your written report 1 What were your trades show a spreadsheet 2 What are your inventory balances cash account bal ance and the production capacity at the end again the spreadsheet would show these 3 A short description of the strategy you used in the game both for bidding and for setting up events 4 Did you use completely open bidding showing bids and bidders only bids but no bidders neither bids nor bid ders or a combination of the above Why What worked best 5 Did you use manual mode and Auto mode How did you use manual mode Did it wo
23. o watch very closely what supply and demand do to market pricing when there are many similar entrants I also think it should be taught that there is always another alternative if you are patient There were a lot of people that wanted to make transaction before they understood what was going on They were usually taken advantage of I learned about negotiation Many times after an offer was made the seller would try to raise the price or the buyer would offer to buy more to entice the seller to sell at a low price I also learned that timing is everything in an auction The price fluctuated a lot throughout the course of a day I think that the learning objectives of this game are about how to negotiate so that you end up with a win win situation for all involved It was a very fast paced game and was sometimes difficult to keep track of I think it really taught the usefulness of tools like excel for record keeping The main lesson I learned from the auction simulation is that what you want and when you want it is a dream Depending on others to fulfill your orders is a joke you must actively seek opportunists to further your bank bal ance and business The learning objectives for this game in the future is to further the understanding of auctions and how they propel a capitalistic market Overall the game was a great learning experience and reinforced why I am an accountant and not a day trader I learned that markets can go dead In o
24. o enter their auction events at will or only by invitation e What are bidders shown about other bids when they have entered in an event bids only bids and bidder names or nothing but the status of their own bids e What is the lot size requirement e Whether to place bidders in an auto mode where they are provided with a price which makes the bidder active or place them in a manual mode where they negotiate one on one 3 Bolded terms are defined in a Glossary at the end of the paper Teich et al The Bread Flour Grain Trading Game Bidding in and Designing Auction Events 44 INFORMS Transactions on Education 5 3 pp 42 54 2005 INFORMS e Whether to place penalties on specific bidders to allow price discrimination or constrain them to restricted quantities These settings could be saved in a template and used in all of their auction events or they could be tailored for each event The game which can be played entirely remotely could last a minimum of 6 virtual days to 40 or more virtual days A virtual day consists of grain auctions closing at a specified time then flour auctions and then bread auctions with an equal length of time between closings We suggest that each virtual day last at least 30 minutes with 10 minutes between the clos ings of each type of commodity Even with this length of time between auction events we have noticed that participants experience high levels of stress to com plete th
25. of a homogeneous good If used in an advanced course the instructor could discuss the difference between a price only auction vs a multidimensional auction For a novice business student it might also be inter esting to see what an auction is to play the role of a purchasing manager production manager inventory control manager and accountant in the quest to earn a profit and win the game With regard to auction design the information architecture is probably the most important concept for the student to grasp This architecture would include how transparent the bids are to individual bidders and others who may not be bidding in the event but may want to observe There are several options An event may be open in the sense that anyone can enter it and make bids once given per mission However if the event is open and the auc tion owner has specified show bids then they can watch the bid stream even without making bids Or if the event is closed only those bidders who are invited may join the event and observe but again only the bid stream information the auction owner has specified and that may be no information Obvi ously this will have an impact on how players dis cover the current market prices and how they make decisions regarding their reserve prices and perhaps their bid increments decrements The development of bidding strategies is another important learning objective A bidder may exhibit
26. on as would bidder penalties Reserve Price the maximum a buyer is willing to pay for the merchandize service in a reverse auction or the minimum a seller is willing to accept in a for ward auction Reverse Auction An auction format with one buyer many sellers suppliers and descending prices Winners curse Highest bidder ends up paying too much that is above her true valuation References Farr J F A Felder 2003 An introduction to electricity mar ket auctions using a spreadsheet INFORMS Trans Ed 4 1 http ite _pubs informs org Vol4Nol1 FarrFelder index php Teich et al The Bread Flour Grain Trading Game Bidding in and Designing Auction Events 54 INFORMS Transactions on Education 5 3 pp 42 54 2005 INFORMS Kambil A E van Heck 2002 Making Markets How Firms Can Design and Profit from Online Auctions and Exchanges HBS Press Boston Koppius O R 2002 Information architecture and electronic market performance ERIM Ph D Research Series in Management No 13 Erasmus University Rotterdam Lucking Reiley D 1999 Using field experiments to test equivalence between auction formats Magic on the internet Amer Econom Rev 89 5 1063 1080 MIT Beer game http beergame mit edu default htm MIT ProcurementGamePortal ProcurementPortal Rothkopf M H S Park 2001 An elementary introduction to auc tions Interfaces 31 6 83 97 Teich J H Wallenius J Wallenius A Za
27. r producers and grain producers The bread makers need flour to produce bread the flour producers need grain to produce flour and the grain producers need bread to pay their workers Thus a closed economy is created where each participant needs to produce and sell to other participants Typ ical group sizes are between 12 and 60 They do not require an exactly equal number in each role In groups of size 6 11 to create a healthy market we sug gest the game be varied by only using bread makers and flour producers Game materials are presented in Appendix 1 To prime the game creating an instant demand for goods the players have a deficit in raw materials You may contact the authors for materials for this variation of the game also contact them if you have any questions regarding the design of the game or questions while the game is in play inventory that must be paid back before they can begin production They have enough cash to make these purchases In addition to cash they have an initial inventory of their own product and an initial production capacity The objective of the game is to maximize one s total assets consisting of cash inven tory and production capacity at the end of the auc tion and thus the participants must strive to earn a profit In the basic version of the game the value of the inventory at the end of the game is simply the average market price of that good The value of the production capacity is
28. r production capacity currently is 2 000 cases of bread per day but if you wish to purchase more capacity you may do so at a cost of 25 000 Dollars per 1 000 cases of extra capacity or you may request the government to run an auction to gain capacity The old price you received for your bread under the old fixed price system was 25 Dollars per case The old price you paid for flour was 12 5 Dollars per sack But these prices are totally irrelevant because the government has decided that you will now use the Negoti auction system a dynamic pricing mechanism to determine how much you pay for the flour and how much you receive for the bread Your beginning accounts are as follows Inventory Flour 500 Sacks you stocked out of flour and borrowed some from another producer You must pay this back ASAP Inventory Bread 400 Cases Cash on Hand 10 250 Dollars Username and Password Bread31 An accounting spreadsheet is available from the gov ernment jteich nmsu edu You may buy it from them This is a cash based society and you may not go negative in your cash account Try to maximize your Cash Account The value of the unsold Flour and the Bread inventory will be determined at the end of the game assume the bread does not get stale while held in inventory Everyday you have a number of decisions to make namely 1 How much flour to buy 2 How much bread to sell 3 How much bread to make for the next day sales 4 Whether to buy ad
29. read makers flour producers and grain producers interacting in a closed economy Each individual player acts in the role of a supplier and buyer The participants are required to set up auctions and bid in auctions The objective for the players is to maximize their total assets consisting of cash inven tory and production capacity at the end of the auction The game administrator instructor acts as the gov ernment who can participate by selling extra produc tion capacity and a useful record keeping spreadsheet The game administrator can also manipulate the level of government subsidies to producers and the costs of production The target audience for the game is students enrolled in an introductory course in Operations Man agement Quantitative Methods Supply Chain Man agement E Business Purchasing or Economics The 1 For a basic introduction to auctions see Rothkopf and Park 2001 Teich et al The Bread Flour Grain Trading Game Bidding in and Designing Auction Events INFORMS Transactions on Education 5 3 pp 42 54 2005 INFORMS 43 game is intended to provide bidding experience practice in formulating strategies and gathering infor mation as well as in designing and setting up auction events A basic version of the game could be used or it could be played with more complicated enhance ments As such the game is appropriate for both undergraduate and MBA level students The game could be played completel
30. rk 6 Did you use bidder penalties How did they work 7 What would you do differently next time Teich et al The Bread Flour Grain Trading Game Bidding in and Designing Auction Events INFORMS Transactions on Education 5 3 pp 42 54 2005 INFORMS 51 Appendix 5 Screenshots of Negotiauction System NegotiAuction Mozilla Firefox Fle Edt View Go Bookmarks Tools Help oo S D GF O Ammeg s lt SsSSSSSSCCCOCSCSCSCSC CtstSSSSSSSSSSSCR Go G La Firefox Help Firefox Support Plug FAQ eve tee L3 502 Proxy Error i NegotiAuction o Uu dartioa Wednesday 15 Jun 2005 12 48 31 PM Welcome bread31 My Auctions Browse open Auctions Create a new Auction Closed Auctions Templates Name bread salo day Tasty breac for sale Descnption Type Forward Aucton w Category foodibread Product bread Image URL htp www bread ce Open entry A Sing Onoto Updated a 43 04 200 01 20 64 System Auction grain New auction Auction grain started s ae saN 02 16 31 SYSTEM selifiourday11 Auction closed Your bid 1904 won in the auction s LJ Firefox Help _ Firefox Support _ Plug in FAQ Ee 1L 502 Proxy Error _ NegotiAuction 3 Register Auctions rait User Lopert Wednesday 15 Jun 2005 12 51 39 PM Welcome bread3t My Auctions Browse open Auctions Create a new Auction Closed Auctions Templates 13 04 2005 01 20 54 e pM SYSTEM New auction Auction grain started
31. t 10 a m on Dec 2nd and there are two days every hour until 8 p m when Day 20 ends Day 21 begins at 10 a m on Dec 3rd and these continue until 8 P M when Day 40 ends 8 The best trader from each role Flour Bread and Grain will be awarded 5 extra credit points for the game That is one from each for the combined classes three in total not six 9 Please manually close all of your auctions at the clos ing time If you set the time and expect them to close auto matically they will remain open because of an auto extend feature which automatically extends an auction event 4 min utes when bids continue to stream in 10 You may verify your trades with your trading part ner via the messaging window or via the appropriate chat trading room in Web CT 11 You will keep track of your own financials and inventories by using a type of table shown below or by making your own spreadsheet or purchasing one from the government 2 Flour Producer Confidential Instructions SAMPLE You are a Flour producer and seller You must use one container of grain to produce one sack of flour It takes one day to produce the flour after you have purchased the grain So if you buy grain in Day One you may sell the resulting flour in Day Two In other words you cannot buy the grain and make the flour in the same day The govern ment has generously provided a subsidy for flour produc tion which consists of all other production costs
32. ther words we went for a long time with no buyers and sellers for certain products this caused confusion and consternation from those who needed to buy or sell It is a strange phe nomenon considering that the participants were equally divided among professions The learning objectives could be understanding bidding behavior and a study of the win ner s curse It would also be interesting to keep a record of the transactions so the entire class can actually track bidding behavior A discussion of bidding patterns and game the ory would be nice to have afterwards Also a class discus sion concerning interesting moves including selling very cheaply or buying very expensively not selling at all or dealing only with specific merchants might be interesting I think the learning objectives for this game should be that it is best to enter into the game when the market is active and competitive I learned that timing is everything and if you hesitate on a deal you lose your chance to make that deal Also I think it was important to learn that when the market is more active with more dealers prices tend to be much more in your favor The biggest lesson I learned as I mentioned above was in timing It was best to wait until the very end when you wanted something or the price would escalate too quickly It s all based on supply and demand at the time Also I learned that it was best to have the product in demand If your product is not in d
33. tion Game Instruction Sheet 1 Logging in 1 Go to www 2 fbk eur nl na 2 Hit Login 3 Enter Login and Password bread flour or grain where is number on your sheet 4 Enter Auction of any other participant s auction event If you have been already added to their events by them look under participated otherwise look under others 2 Bidding 1 Once you ve entered an auction and seen the descrip tion you must be changed to either manual or auto mode unless added by auction owner then in auto 2 Send a message to the auction owner using the mes saging window at the bottom of the screen or send an email 3 Once changed to auto or manual mode off pause mode hit make new bid 4 A bid screen will pop up 3 Auto Mode Bidding 1 Enter a quantity you want to bid on in quantity field Leave price field blank 2 Hit request price 3 Algorithm calculates price that will make you active 4 If acceptable hit OK or to view the discounts asso ciated with varying negotiable bid issue levels hit view discounts 5 repeat steps 1 4 until a bid is submitted or leave 4 Manual Mode Bidding 1 Enter a quantity price and terms that would serve as your initial offer along with a message to the auction owner Hit make offer 2 Wait for auction owner to respond with a counter offer 3 Respond to his her counter offer repeat until conver gence or you leave 4 If bid is accepted by auction owner request to
34. tional capacity in increments of 1 000 This capac ity can also be sold via forward auction events by the instructor or sold for a fixed price An accounting spreadsheet can also be sold in forward auction The accounting spreadsheets are downloadable with this paper Teich et al The Bread Flour Grain Trading Game Bidding in and Designing Auction Events INFORMS Transactions on Education 5 3 pp 42 54 2005 INFORMS 45 events by the instructor prior to or during the simu lation This spreadsheet is a simple accounting sheet that the students themselves could easily develop Of course the students could also keep track of their cash balances and inventories by hand although this takes time away from trading 5 Learning Objectives This game will help students achieve multiple learn ing objectives In general we view the game illus trating three basic concepts i e the design of on line auction events the development of a bidding strategy in other s events and understanding the basic con cepts of an electronic market and how such markets operate Basic auction concepts such as the difference between a forward and a reverse auction are illus trated by the game as well as the difference between the role of a bidder and an auction owner This could lead to a discussion of the differences between an online vs live auction event as well as the differences between auctioning a single unit and multiple units
35. uctions are not price only but they may incorporate other issues such as delivery quality payment terms etc see Teich et al 2004 If the instructor wishes to incorporate such multiple issues into the game the advanced features of the Negotiauction software support it 7 Conclusions We have described a purchasing and selling game for online auctions We expect this game to be a useful pedagogical tool for instructors of MS OR Operations Management Purchasing E commerce Supply Chain Management and Economics courses It provides hands on introductions to online auction design bidding strategies and market behavior Surely the bread flour grain game is not yet a perfect mechanism for teaching about online auctions There certainly is room for improvement However students who have played the game have enjoyed it and found it to be one of the more educational experiences in the courses they were enrolled in This game has no single lesson or ahhaa moment like in the famous MIT Beer Game demonstrating the Bull Whip Effect It is up to the instructor to decide what lessons are appropriate for the course and then drive the game and the debriefing in that direction For example in one recent play of the game the govern ment canceled all subsidies completely This had the effect of shutting down all markets because the profit potential was eliminated This might be an appropri ate lesson for an economics course W
36. ward and reverse auctions need to be introduced then more advanced concepts of infor mation architecture should be discussed That is what amount of information of bids and bidders should be reported to the bidders When does a full open book of bids make sense as compared to a closed book Advanced features of the software could also be intro duced in the training demo These include multiple attributes constraints rating and ranking of bidders and if Negotiauction is used manual mode bidding the negotiation mode Participants should then be shown how to place bids and how to set up their own practice events After this is accomplished the first day of auc tion events could begin if played in class It generally takes about three virtual trading days before the participants really learn the game and the software In the live sessions after an event closes trades can be confirmed verbally however in the remote sessions that follow this is no longer possible and participants should be encouraged to confirm trades via email chat or a messaging system Optimistically the above steps will take about three hours of class time unless only a training session is held We recommend that at least another 5 10 virtual days be simulated remotely To avoid end game effects participants should probably expect more trading days than what they will actually play During the later sessions some participants may want to buy addi
37. what the students paid for it To make the game easier and to focus attention on the auction markets government subsidies are pro vided to cover all production costs except for the raw materials mentioned above An additional cash subsidy can be provided for the grain and flour pro ducers These subsidies are used as an incentive to produce and should enable the players to eventually expand their overall production capacity Even if a bias exists in the subsidies across roles it is irrele vant to the game because competition is restricted to within a role In other words bread makers compete with other bread makers flour producers compete with other flour producers etc in the final evaluation of the player s success in the game Every virtual day each player has a number of major business decisions to make namely e How much bread flour grain to buy at what price e How much bread flour grain to sell at what price e How much bread flour grain to produce for the next day sales e Whether to buy additional capacity e Whether to set up forward events to sell and or reverse events to buy and how many events to set up overall In addition to the above business decisions when setting up auctions the participants need to decide about various design issues having impact on their performance in the game for example e What is the reserve price and quantity e What is the best bid increment decrement e Do they allow bidders t
38. y remotely after a software training session or it could be played during a 3 hour class where students all have access to the Internet or it could be a combination where they play some in class and continue out of class remotely When played remotely we recommend that the instructor use a chat program such as those available in WebCT Blackboard or Yahoo Chat to facilitate discussion and answer questions and perhaps debrief To date the game has been played with a small group of practitioners at Media Plaza Utrecht The Netherlands a group of 25 students enrolled in an MBA Operations Management course at the Helsinki School of Economics three MSc courses varying in size from 12 20 students at the Rotterdam School of Management an MBA Quantitative Methods course at New Mexico State University with 57 students and an undergraduate Electronic Commerce course at New Mexico State University with 18 students In general participating students have found the game useful and exciting Many of the learning objectives stated below were met The rest of the paper is organized as follows Sec tion 2 provides the game description followed by the software description in 3 In 4 we explain how to set up a game The learning objectives of the game are presented in 5 Extensions and variations to the game are discussed in 6 Section 7 concludes the paper 2 Game Description The game involves players who represent bread makers flou
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