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Prices as indicators of scarcity - an experimental study of a multistage auction

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  • Tanga McDaniel
  • Andreas Nicklisch

    ()

Abstract

The price mecanism is the primary means of information transfer in decentralized economic systems. High prices indicate high demand, whereas low prices indicate low demand. Thus prices are the signals for accelerating or slowing production. However, using sequential, multi-unit auctions, we show that the price mechanism fails to be beneficial for producers in every case. As an example we discuss auctions for future access rights to a network. We use experiments to show that the incentives for free-riding inherent in auctions for future access provide inaccurate signals for investment.

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Bibliographic Info

Paper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Papers on Strategic Interaction with number 2004-30.

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Length: 22 pages
Date of creation: Jun 2004
Date of revision:
Handle: RePEc:esi:discus:2004-30

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Keywords: auctions; capacity; experiments; investment; multiunit; networks; sequential;

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  1. R. Preston McAfee & Daniel Vincent, 1994. "Sequentially Optimal Auctions," Discussion Papers 1104, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Tanga McDaniel & Karsten Neuhoff, 2003. "Use of Long-term Auctions for Network Investment," Working Papers 2003.29, Fondazione Eni Enrico Mattei.
  3. Tibor Neugebauer & Paul Pezanis-Christou, 2003. "Bidding at Sequential First-Price Auctions with(out) Supply Uncertainty: a Laboratory Analysis," Working Papers 24, Barcelona Graduate School of Economics.
  4. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  5. Tanga McDaniel & Neuhoff, K., 2002. "Auctions to gas transmission access: The British experience," Cambridge Working Papers in Economics 0234, Faculty of Economics, University of Cambridge.
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