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Fixed price plus rationing: an experiment

Published online by Cambridge University Press:  14 March 2025

Veronika Grimm ,
Jaromir Kovarik  and
Giovanni Ponti
Veronika Grimm*
Affiliation:
Department of Economics, University of Cologne, Albertus Magnus Platz, 50923 Cologne, Germany
Jaromir Kovarik*
Affiliation:
Departamento de Fundamentos del Análisis Económico, Universidad de Alicante, 03071 Alicante, Spain
Giovanni Ponti*
Affiliation:
Departamento de Fundamentos del Análisis Económico, Universidad de Alicante, 03071 Alicante, Spain
*
e-mail: [email protected]
e-mail: [email protected]
e-mail: [email protected]
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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 mechanismRationingExperimental economics

JEL classification

D45: Rationing • Licensing C90: General
Type
Research Article
Information
Experimental Economics , Volume 11 , Issue 4 , December 2008 , pp. 402 - 422
Copyright
Copyright © 2008 Economic Science Association

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Footnotes

Electronic supplementary material The online version of this article (http://dx.doi.org/10.1007/s10683-007-9184-y) contains supplementary material, which is available to authorized users.

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