PRICING STRATEGY ALGORITHMS FOR PLAYING BUSINESS SIMULATIONS Developments In Business Simulation & Experiential Exercises, Volume 17, 1990 192 PRICING STRATEGY ALGORITHMS FOR PLAYING BUSINESS SIMULATIONS Kenneth R. Goosen, University of Arkansas at Little Rock INTRODUCTION The purpose of this paper is to report a theoretical pricing strategy algorithm developed specifically for The Management/Accounting Simulation. The analysis was based on the assumption that game participants have almost perfect knowledge of the simulation. The question arises: if the participants have perfect knowledge of the facts, functions, parameters, and algorithms of a simulation, what pricing algorithm should be used to take full advantage of this knowledge? THE MANAGEMENT/ACCOUNTING SIMULATION The Management/Accounting Simulation is a non- interactive total enterprise simulation designed specifically for courses in management accounting. Non-interactive connotes that the decisions of one team do not affect the decisions of another team. The simulated company, called the V. K. Gadget Company, is a manufacturing business and makes a single product called the gadget. The company operates in four territories and each territory has a well-defined demand curve. Graphs of each territorial’ demand curve are presented in the Student Manual. A NON ITERATIVE APPROACH FOR FINDING THE OPTIMUM PRICE Given adequate information a trial and error approach may be used to find the best price. This approach is somewhat tedious. Also, it does not provide an insight into certain relationships that should be understood. Can a non-iterative approach utilizing a basically simple mathematical equation be found? The answer is yes. The nature of economic relationships Such as price and quantity and wage rates and productivity are most effectively presented as mathematical functions. In almost all cases, some simplifying assumptions must be made. In order to make the analysis easier to comprehend the following simplifications are assumed: Demand is often presented as a straight line sloping downward and to the right as defined by equation (1). A decrease in price results in a measurable increase in quantity demanded. Since our goal is to develop a non-iterative algorithm for determining the optimum price, we can used equation (7) to achieve this objective. given that our objective is to find the price that maximizes net income, the best price is at the point where the slope of the net income line is zero. The maximum value for I, or income, can be found by using calculus. The first derivative of the equation 7 then is. An equation that identifies the best price has now been found. Equation 10 simply requires that the aggregate value for V and the value of price at the Y- intercept be known. The Y-intercept price, P0, is the price that result’s in zero sales. The simplicity of equation 10 is due to the fact that equations (1) and (2) are linear equation. However, “s can be shown, even if non—linear equations, in fact, exist, equation 10 can be used to arrive at an approximation of the best price. A very careful’ analysis of equation 10 suggests the following pricing algorithm: 1. Determine the variable cost rate by first making those decisions that determine the variable cost rate. 2. Identify price at the Y-intercept. 3. Compute the average of the Y-intercept price and the variable cost rate by dividing by 2. Equation 10 can be simply illustrated assuming that the decisions, which determine V, the variable cost rate, have been made. ln the V. K. Gadget Company, the starting value for V is $100.62. The Y-intercept value, P, can be estimated to be $260. Assuming other things equal, that is, no planned changes in decisions, price should be: Table of Contents Volume 17, 1990 The Impact of Decision Support Systems on the Effectiveness of Small Group Decisions - Revisited The Relationship Between Financial Performance and Other Measures of Learning on a Simulation Exercise Use and Effectiveness of an Analogy-Based Expert System Suggestions for Computerized Business Authors Dealing with Power: An Experiential Exercise Using Movie and Personal Diary Analysis Techniques A Model for Developing Student Skills and Assessing Outcomes Through Outdoor Training Computer-Aided Exercises Versus Workbook Exercises as Learning Facilitator in the Principles of Marketing Course An Exposition of Guilford's Si Model as a Means of Diagnosing and Generating Pedagogical Strategies in Collegiate Business Education Formal Planning and Simulation Team Performance: A Cross Sectional Approach Cases: Real Organizations in Real Time in the Classroom An Empirical Investigation of the Internal Validity of Marketing Simulation Game An Empirical Evaluation of the Pedagogical Value of Playing a Simulation Game in a Principles of Marketing Course Factors Affecting Effective Teaching of Strategic Planning: Some Preliminary Evidence An Experiential Exercise for Learning About the Relationship Between Organizational Form & the Project Management Process Accounting Communication Skills can be Taught in the Auditing Course Modeling Cost Functions in Computerized Business Simulation: An Application of Duality Theory and Sheppard's Lemma A Life Cycle Analysis of Decision Making for a Strategic Management Team What's the Problem? A Dynamic Model for Teaching Problem Solving Skills Experientially International Currency Fluctuations: Money$im, A Simulation Superstores: A Specialized Retailing Simulation Within a Specialized Marketing Curriculum Factors Affecting Student Perceptions of Learning in a Business Policy Game VC + EL = VL The Name Game: An Experiential Exercise in Intergroup Relations The Effects of Experiential Accounting Work Experience on Student Performance in Intermediate Accounting Courses The Results of Using the Experiential Activity Group Performance Evaluation in a Business Policy Setting Using a Legal Database to Describe the Legal Environment of Marketing (and Business) Matching Environmental Uncertainty and Organizational Configuration An Instructional Computer Simulation of Tampering in QC Executive Evaluation of Student Learning in the Looking Glass Simulation Group Personality Composition and Total Enterprise Simulation Performance An Expert System for Selecting Analytical Techniques for Analyzing Marketing Research Data Effects of Cognitive Styles on Responses in an In-Basket Simulation A Psychometric Analysis of Kolb's Revised Learning Style-Inventory Selecting and Developing Experiential Exercises Using Movies Application of a Real-World Strategic Management Model in the Classroom Demand Equations which Include Product Attributes Consumption as the Objective in Computer-Scored Total Enterprise Simulations The Effects of Decision Format and Evaluation on Simulation Performance, Decision Time, and Team Cohesion The Effects of Computer Related Assignments on Student Performance in Business Administration The Money Game: A Dynamic Simulation Including Random Shocks for Money and Banking Courses Methods for Evaluating Performance on Business Simulations: A Survey The Effects of Synergogy on the Policy Course: Significant Improvements in Student Learning and Teacher Evaluation Conditions and Outcomes of Trust in a Two-Person Bargaining Exercise Bankgame Enhancing Computer Business Simulation with the Use of VGA Graphics An Experiential Approach to Entrepreneurship An Advanced Simulation Method (ASM) for Multiple Objective Problems The Influence of Experiential learning Techniques on Student Recognition of Non-Primary Learning Styles Negotiating Mergers and Acquisitions: A Cocktail Napkin Approach Identification of Unintended Effects in Experiential Laboratory Exercises An Experimental Comparison of Paper and Pencil and Computer Aided Decision Support Tools Porting a Simulation from the IBM World to the Macintosh World A Transaction Cost Analysis of Experiential Learning The Development of Experiential Exercises for Courses in Entrepreneurship and Small Business Management The Assessment Center as and Experiential Classroom Exercise Pricing Strategy Algorithms for Playing Business Simulations Organizational Structures for International Operations: An Experiential Activity Simulation Emphasis in the Business School Capstone Course An Integrated Approach to Computerizing the Business Curriculum Cross-Cultural Business Negotiations Exercise Organizational Socialization and Gender Differences in Students at Work Understanding Student Work Experience: A Content-Analytic Approach Introducing Executive MBA Programs with Management Games An Analysis of Improvement in Business Decision Outcome with Sequential Use of Two Simulation Games Teaching Business Policy Utilizing Mass Lecture and Individual Case Labs Potholes Along the Road to Evaluating Learning Outcomes: The Case of Outdoor Management Training Experiential Learning for Interior Design Students: Using CADD, Lotus 1-2-3, and Wordperfect Cognitive Learning Using a Computer-Based, Qualitative Interactive Business Simulation Sex Discrimination: Does the Woman get the Job or Does the Best Man Win? A Search for Visual Aids to Support Experiential Learning Through the 1990's An Experimental Analysis fo the Effectiveness of Student Role-Playing in Sales Training How to Have Students Learn from their Term Projects Self-Evaluation Exercise (SEE): An Assessment of Class Contribution A Study of the Influence of Team Formation on Attitudes and Performance in Management Games A Hardware Based CIM Simulation Laboratory Model Test Substance Abuse in Organizations Micro Computer Training Models Teaching Forecasting, Cash Budgeting and Inventory Model Building Using SBTools A Comparison of the Effects of Experiential Learning Activities and Traditional Lecture Classes An Adjunct Writing Instruction Assistant, The Computer; With an Illustration Classroom Software for ABC Analysis Utilizing Information Processing Technology to Enhance the Business Policy Simulation Experience Progressive Cases Realistic Job Previews Vs. Traditional Job Previews: Experiencing the Differences and Understanding the Consequences Investment Analysis Using the Pragmatic Multiplier Approach A Computer Simulation Interface for Competitive and Firm Analysis Self-Assessment of Ethical Decision Making Predispositions Preparing Managers for Overseas Assignments An Inquiry into Japanese Marketing: Workshop on Teaching Japanese Marketing The Performance Appraisal Feedback Interview: A Role Play for Human Resources Management Teaching Counselor Selling techniques Using Experiential Techniques to Teach International Topics International Management Simulation Gaming: Current Status and Future Developments A Realism Comparison of Simulation Technologies/Methodologies A Time-Efficient Game to Illustrate Concepts Taught in Management Courses and Management Development Programs Teaching the Management of Technology The Concept of Face and the Applicability of Experiential Exercises in an Oriental Culture's