Fixed price plus rationingAn experiment

  1. Grimm, Veronika
  2. Kovarik, Jaromir
  3. Ponti, Giovanni
Revista:
Working papers = Documentos de trabajo: Serie AD

Año de publicación: 2006

Número: 26

Tipo: Documento de Trabajo

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Resumen

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

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