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Fixed price plus rationing: an experiment

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Author Info
GRIMM, Veronika
KOVARIK, Jaromir
PONTI, Giovanni

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Abstract

This paper explores, theoretically and experimentally, a fixed-price mechanism bywhich, if aggregate demand exceeds supply, bidders are proportionally rationed. Ifdemand is uncertain, equilibrium consists in overstating true demand to alleviate theeffects of being rationed. Overstating is more intense the lower the price, with bidsreaching their upper limit for sufficiently low prices. In the experiment, despite of asignificant proportion of equilibrium play, subjects tend to (under)overbid the equilibriumstrategy when rationing is (high) low, with only this latter effect being persistentover time. We explain the experimental evidence by a simple model in which theprobability of a deviation is decreasing in the expected loss associated with it.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2005039.

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Date of creation: 01 Jun 2005
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Handle: RePEc:cor:louvco:2005039

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Related research
Keywords: Þxed price mechanism; rationing; experimental economics;

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Find related papers by JEL classification:
C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
D45 - Microeconomics - - Market Structure and Pricing - - - Rationing; Licensing

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Herrero & C., 2004. "On the Adjudication of Conflicting Claims: An Experimental Study," Econometric Society 2004 North American Summer Meetings 166, Econometric Society. [Downloadable!]
    Other versions:
  2. Herrero, Carmen & Villar, Antonio, 2001. "The three musketeers: four classical solutions to bankruptcy problems," Mathematical Social Sciences, Elsevier, vol. 42(3), pages 307-328, November. [Downloadable!] (restricted)
    Other versions:
  3. Dirk Engelmann & Veronika Grimm, 2006. "Bidding Behavior in Multi-Unit Auctions - An Experimental Investigation," Working Paper Series in Economics 24, University of Cologne, Department of Economics. [Downloadable!]
    Other versions:
  4. Rosenthal, Robert W, 1989. "A Bounded-Rationality Approach to the Study of Noncooperative Games," International Journal of Game Theory, Springer, vol. 18(3), pages 273-91.
  5. Goeree, Jacob K. & Holt, Charles A. & Palfrey, Thomas R., 2002. "Quantal Response Equilibrium and Overbidding in Private-Value Auctions," Journal of Economic Theory, Elsevier, vol. 104(1), pages 247-272, May. [Downloadable!] (restricted)
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  6. GRIMM, Veronika & KOVARIK, Jaromir & PONTI, Giovanni, 2005. "Fixed price plus rationing: an experiment," CORE Discussion Papers 2005039, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
    Other versions:
  7. Nir Dagan & Roberto Serrano & Oscar Volij, 1997. "A Noncooperative View of Consistent Bankruptcy Rules," Economic theory and game theory 005, Nir Dagan. [Downloadable!]
    Other versions:
  8. Anderson, Simon P. & Goeree, Jacob K. & Holt, Charles A., 2001. "Minimum-Effort Coordination Games: Stochastic Potential and Logit Equilibrium," Games and Economic Behavior, Elsevier, vol. 34(2), pages 177-199, February. [Downloadable!] (restricted)
  9. Kagel, John H & Levin, Dan, 2001. "Behavior in Multi-unit Demand Auctions: Experiments with Uniform Price and Dynamic Vickrey Auctions," Econometrica, Econometric Society, vol. 69(2), pages 413-54, March.
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  11. Jürgen Bierbaum & Veronika Grimm, 2006. "Selling shares to retail investors: auction vs. fixed price," Review of Economic Design, Springer, vol. 10(2), pages 85-112, August. [Downloadable!] (restricted)
  12. Hervé Moulin, 2000. "Priority Rules and Other Asymmetric Rationing Methods," Econometrica, Econometric Society, vol. 68(3), pages 643-684, May.
  13. Simon P. Anderson & Jacob K. Goeree & Charles A. Holt, 1999. "Stochastic Game Theory: Adjustment to Equilibrium Under Noisy Directional Learning," Virginia Economics Online Papers 327, University of Virginia, Department of Economics. [Downloadable!]
  14. John A. List & David Lucking-Reiley, 2000. "Demand Reduction in Multiunit Auctions: Evidence from a Sportscard Field Experiment," American Economic Review, American Economic Association, vol. 90(4), pages 961-972, September. [Downloadable!] (restricted)
  15. Jeremy Bulow & Paul Klemperer, 2002. "Prices and the Winner's Curse," RAND Journal of Economics, The RAND Corporation, vol. 33(1), pages 1-21, Spring.
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  16. Chun, Youngsub, 1989. "A noncooperative justification for egalitarian surplus sharing," Mathematical Social Sciences, Elsevier, vol. 17(3), pages 245-261, June. [Downloadable!] (restricted)
  17. Thomas Palfrey, 2002. "Quantal Response Equilibrium and Overbidding in Private Value Auctions," Theory workshop papers 357966000000000089, UCLA Department of Economics. [Downloadable!]
  18. Richard J. Gilbert & Paul Klemperer, 2000. "An Equilibrium Theory of Rationing," RAND Journal of Economics, The RAND Corporation, vol. 31(1), pages 1-21, Spring.
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  19. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Veronika Grimm & Giovanni Ponti & Jaromir Kovarik, 2006. "Fixed Price Plus Rationing: An Experiment," Working Papers. Serie AD 2006-26, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
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