Experimental Economics

, Volume 11, Issue 4, pp 402–422 | Cite as

Fixed price plus rationing: an experiment

Article

Abstract

This paper theoretically and experimentally explores a fixed price mechanism in which, if aggregate demand exceeds supply, bidders are proportionally rationed. If demand is uncertain, in equilibrium bidders overstate their true demand in order to alleviate the effects of being rationed. This effect is the more intense the lower the price, and bids reach their upper limit for sufficiently low prices. In the experiment we observe a significant proportion of equilibrium play. However, subjects tend to overbid the equilibrium strategy when prices are high and underbid when prices are low. We explain the experimental evidence by a simple model in which the probability of a deviation is decreasing in the expected loss associated with it.

Keywords

Fixed price mechanism Rationing Experimental economics 

JEL

C90 D45 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

Supplementary material

References

  1. Anderson, S., Goeree, J. K., & Holt, C. (1999). Stochastic game theory: adjustment to equilibrium under noisy directional learning. Mimeo, University of Virginia. Google Scholar
  2. Anderson, S., Goeree, J. K., & Holt, C. (2001). Minimum-effort coordination games: stochastic potential and logit equilibrium. Games and Economic Behavior, 34, 177–199. CrossRefGoogle Scholar
  3. Bierbaum, J., & Grimm, V. (2006). Selling shares to retail investors: auction vs. fixed Price. Review of Economic Design, 10(2), 85–112. CrossRefGoogle Scholar
  4. Bulow, J., & Klemperer, P. (2002). Prices and the winner’s curse. RAND Journal of Economics, 33, 1–21. CrossRefGoogle Scholar
  5. Chun, Y. (1989). A noncooperative justification for egalitarian surplus sharing. Mathematical Social Sciences, 17, 245–261. CrossRefGoogle Scholar
  6. Dagan, N., Serrano, R., & Volij, O. (1997). A noncooperative view of consistent bankruptcy rules. Games and Economic Behavior, 18, 55–72. CrossRefGoogle Scholar
  7. Fischbacher, U. (2007). z-Tree: Zurich toolbox for ready-made economic experiments. Experimental Economics, 10(2), 171–178. CrossRefGoogle Scholar
  8. Gilbert, R., & Klemperer, P. (2000). An equilibrium theory of rationing. RAND Journal of Economics, 31, 1–21. CrossRefGoogle Scholar
  9. Goeree, J. K., Holt, T. R., & Palfrey, C. A. (2002). Quantal response equilibrium and overbidding in private-value auctions. Journal of Economic Theory, 104, 247–272. CrossRefGoogle Scholar
  10. Grimm, V., Kovarik, J., & Ponti, G. (2005). Fixed Price plus Rationing: an Experiment (Quaderno deit n. 7-2005). Dipartimento Economia Istituzioni Terriorio, Università di Ferrara. http://newdeit.economia.unife.it/quaderno.phtml.
  11. Herrero, C. (2003). Equal awards vs. equal losses: duality in bankruptcy. In M. R. Sertel & S. Koray (Eds.), Advances in economic design (pp. 413–426). Berlin: Springer. Google Scholar
  12. Herrero, C., & Villar, A. (2001). The three musketeers. Four classical solutions to bankruptcy problems. Mathematical Social Sciences, 42, 307–328. CrossRefGoogle Scholar
  13. Herrero, C., Moreno-Ternero, J., & Ponti, G. (2004). On the adjudication of conflicting claims: an experimental study. Mimeo, Universidad de Alicante. Google Scholar
  14. McKelvey, R. D., & Palfrey, T. R. (1995). Quantal response equilibria for normal form games. Games and Economic Behavior, 10, 6–38. CrossRefGoogle Scholar
  15. Moreno-Ternero, J. D. (2002). Noncooperative support for the proportional rule in bankruptcy problems. Mimeo, Universidad de Alicante. Google Scholar
  16. Moulin, H. (2000). Priority rules and other asymmetric rationing methods. Econometrica, 68, 643–648. CrossRefGoogle Scholar
  17. Rosenthal, R. (1989). A bounded-rationality approach to the study of noncooperative games. International Journal of Game Theory, 18, 273–292. CrossRefGoogle Scholar

Copyright information

© Economic Science Association 2007

Authors and Affiliations

  • Veronika Grimm
    • 1
  • Jaromir Kovarik
    • 2
  • Giovanni Ponti
    • 2
  1. 1.Department of EconomicsUniversity of CologneCologneGermany
  2. 2.Departamento de Fundamentos del Análisis EconómicoUniversidad de AlicanteAlicanteSpain

Personalised recommendations