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ABSTRACT
In this study, the author describes a classroom experiment on new trade theory appropriate for undergraduate international economics and trade courses. Students portray U.S. and Japanese automobile manufacturers with different average cost schedules. There are five rounds in the experiment, starting with autarky in the 1960s and ending with the Great Recession of 2008–9. In each round, the instructor announces a market price and quantity and then each producer calculates its market share, average cost and profit; and makes its shutdown decision. By varying the market price and size, the experiment illustrates the gains from intra-industry trade and also how efficiency gains and economic recession impact individual firm performance.
Acknowledgments
The author thanks his former students for participating in this experiment and two anonymous referees for their comments.
Notes
1. Electronic copies of each item are available at the author's webpage at http://web.csulb.edu/∼syamarik/
2. Electronic versions of the individual instructions, outcomes and AC curves are available from the author.
3. To expedite the early rounds, the instructor could remind the students that each firm receives the same market price and an equal output q in each round. I thank one of the anonymous referees for this suggestion.