Can core allocations be achieved in avoidable fixed cost environments using two-part price competition?

Abstract

Two environments are studied in which sellers have only avoidable fixed costs and fixed capacities: (a) in the first, the core exists and is supportable by a competitive equilibrium; (b) in the second, the core exists but there is no competitive equilibrium. In both cases, demand price is constant up to capacity. Experiments using the double auction institution fail to converge to 100% efficiency allocations in either environment. We study a new mechanism in which sellers each submit fixed vendor's fees, which must be paid before units can be sold, as well as a price and corresponding maximum quantity. Buyers submit price-quantity bids. A computing center determines allocations that maximize the aggregate surplus subject to the price, quantity, and vendor fee constraints. We report 20 experiments: 5 inexperienced (45 periods) and 5 experienced (75 periods) subject groups in each of the designs (a) and (b). Buyers are simulated to be fully revealing. The same four sellers participate in both inexperienced and experienced sessions. We explain why this environment proves difficult in these experiments and what we intend to do about it in further iterations.