Market Analysis Applications: High Speed Trading and Taxis

This activity was designed for principles courses but could be adapted for intermediate micro as well. It will take 50-75 minutes. The activity starts with a readiness-assessment quiz based on background material on basic costs and market structure, specifically competitive markets. The quiz is followed by two policy application exercises.

Overview

This activity is a team-based policy debate. Given two markets that seem competitive but are subject to some regulation students argue whether more or less regulation is needed an of what type. The learning goal is for students to apply economic models and analysis to support their arguments on relevant policy issues. In this case they should address concerns of efficiency, market power, congestion and technology. Each exercise has a policy questions with five specific options. The topics are chosen and options are designed so that there is not an intended correct answer. Rather, students should be able to make an argument for any of the choices. Their task as a team is to discuss the issue and come to some consensus for the team choice. They are instructed to vote if they cannot come to consensus. The team discussion takes the first 15-20 minutes of the activity.
The instructor then facilitates a class discussion, which begins by having teams simultaneously reveal their choices (using large cards with letters). The teams are then called on in turn to defend their choices to the rest of the class. Their presentations should use market analysis to defend their position. For instance on the financial market question they could either argue that investment made in a free market environment should not be interfered with on efficiency grounds or that unproductive investment that simply enshrines market power should be taxed and/or regulated. On the taxi question they can celebrate the new competition from Uber and Lyft as driving down prices or rue the extra congestion it causes and the risks posed to both riders and drivers. The presentations begin a class wide discussion on what the best policy should be. The instructor facilitates this discussion for 10-15 minutes, after which it culminates in class vote. Students vote individually for the class vote, but extra credit can be offered for any team whose choice wins a majority of the class vote (thus incentivizing effective argument and persuasion).

Expected Student Learning Outcomes

In this activity students will use economic models of costs, market structures and economic efficiency to support policy arguments pertaining to regulation of specific markets.

Information Given to Students

Student teams are given folders with both the quiz and application exercises.

Quiz - market structure (Microsoft Word 2007 (.docx) 18kB May14 18)
Application Exercises - Market Structure (Microsoft Word 2007 (.docx) 14kB Aug6 18)

This activity includes both a readiness-assessment quiz and application exercises. It can be completed in one class period or spread over two. The quiz is ten multiple choice questions based on background material on firm costs and market structures that has been previously covered in both readings and class lectures or activities. The quiz is posted online for individual completion before class and then given to each team to take again in class along with immediate feedback scratch cards.
In the application exercise students are given two policy questions in teams. Their task as a team is to try to form a consensus around one of the five options for each policy. The policy questions are designed so that there is no "right" answer; the goal is for students to see how economics can inform policy debates. Students should make arguments informed by economic models. In the high-speed trading question, for instance, is it an example of investment in a competitive market or the creation of a fixed input that generates economic rent? In the taxi question, do Uber and Lyft simply represent competitive entry that is driving down prices and helping consumers, or are they adding to congestion and posing risks to consumers due to light safety regulations? As students debate, the instructor should circulate, listen to arguments and ask probing questions to get students to think critically in terms of the models. Teams sometimes settle on a choice fairly quickly; in that case the instructor should challenge their arguments by arguing for other options and asking the team if everyone is in agreement. Once all teams have made their choices they should all report them simultaneously. This can be easily done by giving each team large letters (A through E) and having them all hold up the letter of their choice at the same time. The instructor should select one member from each team to briefly defend that team's choice to the class (random selection is good here; it is better if students do not know who is presenting until it is time to present so everyone has to prepare and be engaged in the discussion).
The instructor then leads a short class discussion on the topic, filling in or correcting flawed reasoning when necessary and also noting if there is a convergence to one or two options. Does the class have a consensus view on what appropriate market regulation is? If so, what principles is it based on? If not, what are the challenges preventing agreement? It is also good to consider why other options were eliminated. The discussion culminates in a class-wide individual vote on each policy. Students do not have to choose the same policy from their group for the individual vote; rather they can use the class vote as an opportunity to dissent form their group choice. If desired, additional incentives can be offered to any team whose policy choice secures a majority of class votes; a few extra credit points can motivate teams to build consensus and argue strongly for their preferred policy.

Quiz grades provide evidence of preparedness and general understanding. Exams using application type questions assess the students' ability to meet the learning goal for this activity.