{"id":78600,"date":"2018-02-20T23:50:30","date_gmt":"2018-02-20T23:50:30","guid":{"rendered":"https:\/\/writemyessayfree.com\/opec-game-instructions-for-the-opec-game"},"modified":"2017-08-18T07:31:17","modified_gmt":"2017-08-18T07:31:17","slug":"opec-game-instructions-for-the-opec-game","status":"publish","type":"post","link":"https:\/\/www.benedictsol.com\/blogs\/opec-game-instructions-for-the-opec-game\/","title":{"rendered":"OPEC GAME: Instructions for the OPEC Game"},"content":{"rendered":"

Instructions for the OPEC Game <\/strong><\/p>\n

 <\/strong><\/p>\n

OVERVIEW:<\/strong><\/p>\n

In the OPEC game, will be assigned to a team (country). Your team controls the oil production<\/p>\n

of a country that is part of OPEC. The countries correspond (very roughly) to Saudi Arabia, Iran,<\/p>\n

Iraq, Kuwait, United Arab Emirates, Venezuela, and Nigeria. There is also production by the<\/p>\n

Rest of World (ROW). In each period, each of the seven member countries of OPEC choose their<\/p>\n

quantities. The ROW chooses production as a price taker in response to the price in the world<\/p>\n

market.<\/p>\n

 <\/p>\n

 <\/p>\n

YEARS OF THE GAME:<\/strong> The OPEC game has three \u201cyears.\u201d In the first year, which has only<\/p>\n

2 production periods, all 28 teams in the class are part of the same game. In the second year and<\/p>\n

third years, there will be four games \u2013A, B, C, and D, one for each section \u2013 and seven countries<\/p>\n

in each game. In the second year, each country attempts to maximize its profits without any<\/p>\n

communication or coordination with other countries. There are 4 production periods in the<\/p>\n

second year. The third year is identical to the second except the countries in each game will meet<\/p>\n

in section at the beginning of the third year. At that point, you may attempt to form a cartel and<\/p>\n

agree upon production quotas. The ROW never participates in the cartel and always behaves as a<\/p>\n

price taker in all years.<\/p>\n

 <\/p>\n

STRATEGY CHOICES<\/strong>: The game lasts for 10 periods, 2 in the first year and 4 in each of the<\/p>\n

second and third years. The schedule for the OPEC game is shown at the end of this document.<\/p>\n

In each period, your country has only one choice variable: the quantity of oil you will produce in<\/p>\n

that period. The world market price adjusts to clear the market given the production of all OPEC<\/p>\n

countries and ROW.<\/p>\n

Each country is endowed with a total oil reserve for the game and a constant marginal cost of<\/p>\n

extraction up to a per-period production capacity. These are given in the worksheet<\/strong><\/p>\n

CountryData<\/strong>. These data are included in forStudentsOPECDATA2015.XLS. All information on<\/p>\n

production costs, capacities and reserves are public at the beginning of the game. You cannot<\/p>\n

exceed reserves during each year- for example in year 1 Iran\u2019s production decisions in period 1<\/p>\n

and two added up have to be less than reserves listed for YEAR 1 (that is, 10120). The actual<\/p>\n

production choice by each country in each period is not public information, but all players see<\/p>\n

the price in the market and approximate world production (an estimate of world production that<\/p>\n

is accurate to plus or minus random shocks that allow production to vary by up to 2.5% with a<\/p>\n

probability of 0.95).<\/p>\n

 <\/p>\n

DEMAND FOR OIL:<\/strong> In order to maximize profits for their country, each team must consider,<\/p>\n

among other things, the world demand for oil and the world supply. Demand has two levels,<\/p>\n

\u201clow demand\u201d which occurs during every odd numbered period and \u201chigh demand\u201d which<\/p>\n

occurs during every even numbered period. The forStudentsOPECDATA2015.XLS spreadsheet<\/p>\n

also contains 24 historical observations that include estimates of world oil production and ROW<\/p>\n

oil production, as well as the actual world oil price. These are given in the worksheet<\/strong><\/p>\n

DemandData.<\/strong> Twelve of the observations occurred during low demand periods and twelve<\/p>\n

ARE 100B<\/strong>    OPEC GAME<\/p>\n

UC Davis, Department of Agricultural and Resource Economics      Spring 2016<\/p>\n

 <\/p>\n

during high demand periods. Other than switching between low and high, demand does not<\/p>\n

change systematically over time, but is also subject random shocks of plus or minus 2.5% with a<\/p>\n

probability 0.95. The ROW supply as a function of price does not change systematically over<\/p>\n

time other than the random variation already mentioned (plus or minus 2.5% with a probability<\/p>\n

0.95).<\/p>\n

 <\/p>\n

What could you do with this information in the worksheet DemandData?<\/p>\n

\u0095 Get linear demand as an expression Q=a-b*P and ROW supply as an expression q=c+d*P<\/p>\n

by copying and pasting the data into Stata or any other data analyzing software (GRETL,<\/p>\n

etc.)<\/p>\n

Note: I encourage you to try this step. After you completed this step, please compare<\/strong><\/p>\n

your results to the results included in the worksheet Regression Results.  If you are<\/strong><\/p>\n

not familiar with data analysis yet, please refer to the worksheet for the estimated <\/strong><\/p>\n

demand and ROW supply and proceed with these equations.     <\/strong><\/p>\n

\u0095 Get residual demand for the 7 countries (OPEC) from the above calculations.<\/p>\n

Note: You get the residual demand for OPEC by using the demand and subtracting the<\/p>\n

ROW supply (subtracting in terms of Q).<\/p>\n

\u0095 Then, given your marginal costs of seven OPEC countries, decide how much your<\/p>\n

country (or your cartel) should produce to maximize your profits given the rules for each<\/p>\n

year and demand for each period.<\/p>\n

 <\/strong><\/p>\n

END OF EACH YEAR<\/strong>: Each year is essentially a separate game. At the end of each year, a<\/p>\n

new technology appears that allows energy production at the equivalent cost of $100 per barrel<\/p>\n

of oil. All oil that countries still have in reserve at the end of a year is valued in a \u201cresidual\u201d<\/p>\n

period at the price of $100 minus the country\u2019s marginal cost of production. Interest is earned on<\/p>\n

accumulated funds (within a year) between each period.<\/p>\n

 <\/p>\n

COSTS AND FINANCING:<\/strong> The only costs that a country has in producing oil is the marginal<\/p>\n

cost given. The real interest rate is 10% per period. This is also the nominal interest rate as there<\/p>\n

is no inflation. All funds earned and held at the end of each period earn that interest rate. A<\/p>\n

country starts over each year with no funds in the bank.<\/p>\n

 <\/p>\n

LOGISTICS:<\/strong> For each deadline listed below, each country must submit production decisions by<\/p>\n

9pm. Submission is done by email to me (kiesel@ucdavis.edu<\/p>\n

). Please clearly indicate your<\/p>\n

game, country, year, and period in the subject line (Subject: OPEC submission for Game X,<\/p>\n

Country Y, Year X, Period Y,\u201d (where X and Y and 123 are replaced with the appropriate<\/p>\n

information). The body of the email should then state the quantity that the country will produce.<\/p>\n

If a country does not submit by the deadline, their production will default to the level they<\/p>\n

produced in the previous period. (Since demand changes between periods, this is unlikely to be<\/p>\n

the optimal choice.) Each country will need to keep track of its own finances and oil reserves.  I<\/p>\n

will announce the resulting prices and overall supply in lecture and post them on the course<\/p>\n

website.<\/p>\n","protected":false},"excerpt":{"rendered":"

Instructions for the OPEC Game   OVERVIEW: In the OPEC game, will be assigned to a team (country). Your team controls the oil production of a country that is part of OPEC. The countries correspond (very roughly) to Saudi Arabia, Read More …<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-78600","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/78600","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/comments?post=78600"}],"version-history":[{"count":0,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/78600\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/media?parent=78600"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/categories?post=78600"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/tags?post=78600"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}