A Price Game with Product Differentiation in the Classroom

Abstract

This paper describes how a small game is used in the classroom to teach theory and decision making. The game is based on a model of product differentiation where firms compete only with prices. Students acting as firms first make decisions sequentially and then simultaneously. Sample results show that the decisions the students make approach the Nash-equilibrium in the game. In a short period of time, the playing of the game shows that the theory can predict price decisions fairly well.