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Fixed price plus rationing: an experiment

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  • Veronika Grimm
  • Jaromir Kovarik
  • Giovanni Ponti

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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  • Veronika Grimm & Jaromir Kovarik & Giovanni Ponti, 2008. "Fixed price plus rationing: an experiment," Experimental Economics, Springer;Economic Science Association, vol. 11(4), pages 402-422, December.
    • Handle: RePEc:kap:expeco:v:11:y:2008:i:4:p:402-422
    DOI: 10.1007/s10683-007-9184-y
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    Cited by:

    1. Funaki, Yukihiko & Shino, Junnosuke & Uto, Nobuyuki, 2020. "Vulnerability of fixed-rate funds-supplying operations to overbidding: An experimental approach," Global Finance Journal, Elsevier, vol. 46(C).
    2. Veronika Grimm & Jaromir Kovarik & Giovanni Ponti, 2008. "Fixed price plus rationing: an experiment," Experimental Economics, Springer;Economic Science Association, vol. 11(4), pages 402-422, December.
    3. Rosen, Christiane & Madlener, Reinhard, 2013. "An Experimental Analysis of Single vs. Multiple Bids in Auctions of Divisible Goods," FCN Working Papers 8/2013, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN), revised Nov 2013.
    4. Gian Luigi Albano & Angela Cipollone & Roberto Di Paolo & Giovanni Ponti & Marco Sparro, 2018. "Scoring Rules in Experimental Procurement," Working Papers. Serie AD 2018-02, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).

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    More about this item

    Keywords

    Fixed price mechanism; Rationing; Experimental economics; C90; D45;
    All these keywords.

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing

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