This paper theoretically and experimentally explores a fixed price mechanism in which, if aggregate demand exceeds supply, bidders are proportionally rationed. If demand is uncertain, in equilibrium bidders overstate their true demand in order to alleviate the effects of being rationed. This effect is the more intense the lower the price, and bids reach their upper limit for sufficiently low prices. In the experiment we observe a significant proportion of equilibrium play. However, subjects tend to overbid the equilibrium strategy when prices are high and underbid when prices are low. We explain the experimental evidence by a simple model in which the probability of a deviation is decreasing in the expected loss associated with it.

Fixed price plus rationing: an experiment / Grimm, Veronika; Ponti, Giovanni; Kovarik, Jaromir. - In: EXPERIMENTAL ECONOMICS. - ISSN 1386-4157. - 11:4(2008), pp. 402-422. [10.1007/s10683-007-9184-y]

Fixed price plus rationing: an experiment

PONTI, GIOVANNI;
2008

Abstract

This paper theoretically and experimentally explores a fixed price mechanism in which, if aggregate demand exceeds supply, bidders are proportionally rationed. If demand is uncertain, in equilibrium bidders overstate their true demand in order to alleviate the effects of being rationed. This effect is the more intense the lower the price, and bids reach their upper limit for sufficiently low prices. In the experiment we observe a significant proportion of equilibrium play. However, subjects tend to overbid the equilibrium strategy when prices are high and underbid when prices are low. We explain the experimental evidence by a simple model in which the probability of a deviation is decreasing in the expected loss associated with it.
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11385/6230
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