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Fixed price plus rationing: an experiment

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  • GRIMM, Veronika
  • KOVARIK, Jaromir
  • PONTI, Giovanni

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.

Suggested Citation

  • 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).
  • Handle: RePEc:cor:louvco:2005039
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    References listed on IDEAS

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    5. Dirk Engelmann & Veronika Grimm, 2003. "Bidding Behavior in Multi-Unit Auctions - An Experimental Investigation and some Theoretical Insights," CERGE-EI Working Papers wp210, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
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    Cited by:

    1. 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.
    2. 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.

    More about this item

    Keywords

    fixed price mechanism; rationing; experimental economics;

    JEL classification:

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

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