VBC experience

I am not altogether sure how relevant this post will be, but since VBC (Virtual Business Challenge) is a Hwa Chong- initiated entrepreneuship game that intends to simulate the real business world, I would like to talk a little bit about it. Having played both the preliminary round and semi-final round, I think there is much to be learned from the economic's point of view. The following address is the link to a VBC forum where the leading team shared their invaluable insights over maket analysis. So just in case if you are interested.

(http://www.hcine2twork.org/vbc/main.php?topic=17).Okay, back to the original topic, this is done together with my other VBC teammate. The learning points of VBC:

1. Cartel
In the preliminary round of the game, there existed a cartel that basically co-monopolised all four makets. Since free trading of technology was allowed, the cartel was working well in the sense that once one of the cartel members buys develops technology, it can share with the rest in no time, which means that the whole cartel can enjoy cutting-edge advantage in R&D while only one fifth of the money is spent (five of them took turns to buy tech in the game). So together, they were able to monopolise the market and earn supernormal profit.

However, in the game/and most probably in the real world, ideal situation never occurs. I noticed that it is usually the case when one company develops a new tech and only shared with its cartel members after it had 'owned' the market for some time. So does it violate the agreement inside the cartel? I am not sure, but you may want to dig out more from law books. (maybe?)

At the same time, the idea of cartel may not work well in all circumstances.

Firstly, there will be an optimum number of members for the cartel. That is because the more the members, the smaller market share each company is to have, as well as the less profit it is to enjoy. Also, a large cartel means that it is more difficult to oversee all its members' activities, so violating the agreement due to tempetation to earn greater maket share (by lowering its price) may be possible. That is to say, a cartel will only work well when all its members are cooperative.

2. Optimum profit
Optimum profit is not gained when you own the market, but when you achive the point where MC=MR.In VBC, we were not required to draw graphs to see where MC=MR, but rather to find an optimum point for profit from price and quantity. I am not altogether sure whether that is what happened in the real world as some companies seem wish to expand itself continously. One possible explanation is that its start-up cost is so high that it has a far-reach downward slope for its LRAC/LRMC. That is why the type of companies I mentioned just now are mainly low cost industries like fast food industry.

3. Small companies
Even though for the both rounds, the markets were monopolised quite early in the game (around one third of the total game period).

However, that does not necessarily mean the end of the game for small companies like us. Indeed, in times when the markets are monopolised, most of the companies are facing the same situation as us, so whether to win or lose largely depend on how one switches its focus.

Econs notes teaches us that in such situations, small companies need to differentiate their products so that they enjoy a niche market that few companies can compete with them. That is the same for VBC. Since the big companies have already developed various technologies, it is almost impossible for us to compete with them technologicalwise, meaning the tech we develop may not win us back enough money to compensate the amount it is paid at the first place. So what we did was to adjust promotion rate to optimum (something like differentiate product).

Xinyi