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Fixed price plus rationing: an experiment

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

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: 00 Jun 2005
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Handle: RePEc:cor:louvco:2005039
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  1. McKelvey Richard D. & Palfrey Thomas R., 1995. "Quantal Response Equilibria for Normal Form Games," Games and Economic Behavior, Elsevier, vol. 10(1), pages 6-38, July.
  2. 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.
  3. David Lucking-Reiley & John A. List, 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.
  4. Volij, Oscar & Dagan, Nir & Serrano, Roberto, 1997. "A Non-Cooperative View of Consistent Bankruptcy Rules," Staff General Research Papers 5130, Iowa State University, Department of Economics.
  5. Hervé Moulin, 2000. "Priority Rules and Other Asymmetric Rationing Methods," Econometrica, Econometric Society, vol. 68(3), pages 643-684, May.
  6. Antonio Villar Notario & Carmen Herrero Blanco, 2000. "The Three Musketeers: Four Classical Solutions To Bankruptcy Problems," Working Papers. Serie AD 2000-23, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  7. 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).
  8. 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.
  9. Herrero & C., 2004. "On the Adjudication of Conflicting Claims: An Experimental Study," Econometric Society 2004 North American Summer Meetings 166, Econometric Society.
  10. 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.
  11. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  12. Veronika Grimm & Jürgen Bierbaum, 2004. "Selling Shares To Retail Investors: Auction Vs. Fixed Price," Working Papers. Serie AD 2004-08, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  13. Palfrey, Thomas R. & Goeree, Jacob & Holt, Charles, 2000. "Quantal Response Equilibrium and Overbidding in Private-value Auctions," Working Papers 1073, California Institute of Technology, Division of the Humanities and Social Sciences.
  14. Thomas Palfrey, 2002. "Quantal Response Equilibrium and Overbidding in Private Value Auctions," Theory workshop papers 357966000000000089, UCLA Department of Economics.
  15. Chun, Youngsub, 1989. "A noncooperative justification for egalitarian surplus sharing," Mathematical Social Sciences, Elsevier, vol. 17(3), pages 245-261, June.
  16. 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.
  17. 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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