Prices as indicators of scarcity - an experimental study of a multistage auction

Tanga McDaniel and Andreas Nicklisch ()

Papers on Strategic Interaction from Max Planck Institute of Economics, Strategic Interaction Group

Abstract: The price mecanism is the primary means of information transfer in decentralized economic systems. High prices indicate high demand, whereas low prices indicate low demand. Thus prices are the signals for accelerating or slowing production. However, using sequential, multi-unit auctions, we show that the price mechanism fails to be beneficial for producers in every case. As an example we discuss auctions for future access rights to a network. We use experiments to show that the incentives for free-riding inherent in auctions for future access provide inaccurate signals for investment.

Keywords: auctions; capacity; experiments; investment; multiunit; networks; sequential (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp
Date: 2004-06
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Persistent link: http://EconPapers.repec.org/RePEc:esi:discus:2004-30

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