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Co-learning patterns as emergent market phenomena: An electricity market illustration

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  • Li, Hongyan
  • Tesfatsion, Leigh

Abstract

The definition of emergence remains problematic, particularly for systems with purposeful human interactions. This study explores the practical import of this concept within a specific market context: namely, a double-auction market for wholesale electric power that operates over a transmission grid with spatially located buyers and sellers. Each profit-seeking seller is a learning agent that attempts to adjust its daily supply offers to its best advantage. The sellers are co-learners in the sense that their supply offer adjustments are in response to past market outcomes that reflect the past supply offer choices of all sellers. Attention is focused on the emergence of co-learning patterns, that is, global market patterns that arise and persist over time as a result of seller co-learning. Examples of co-learning patterns include correlated seller supply offer behaviors and correlated seller net earnings outcomes. Heat maps are used to display and interpret co-learning pattern findings. One key finding is that co-learning strongly matters in this auction market environment. Sellers that behave as Gode-Sunder budget-constrained zero-intelligence agents, randomly selecting their supply offers subject only to a break-even constraint, tend to realize substantially lower net earnings than sellers that tacitly co-learn to correlate their supply offers for market power advantages.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 82 (2012)
Issue (Month): 2 ()
Pages: 395-419

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Handle: RePEc:eee:jeborg:v:82:y:2012:i:2:p:395-419

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Web page: http://www.elsevier.com/locate/jebo

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Keywords: Emergence; Co-learning; Double auction; Wholesale electric power market; Capacity withholding; Market power; AMES wholesale power market testbed; Heat maps;

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  1. Emmanuel Dechenaux & Dan Kovenock, 2007. "Tacit collusion and capacity withholding in repeated uniform price auctions," RAND Journal of Economics, RAND Corporation, vol. 38(4), pages 1044-1069, December.
  2. Roth, Alvin E. & Erev, Ido, 1995. "Learning in extensive-form games: Experimental data and simple dynamic models in the intermediate term," Games and Economic Behavior, Elsevier, vol. 8(1), pages 164-212.
  3. Nicolaisen, James & Petrov, Valentin & Tesfatsion, Leigh S., 2001. "Market Power and Efficiency in a Computational Electricity Market with Discriminatory Double-Auction Pricing," Staff General Research Papers 2050, Iowa State University, Department of Economics.
  4. Weidlich, Anke & Veit, Daniel, 2008. "A critical survey of agent-based wholesale electricity market models," Energy Economics, Elsevier, vol. 30(4), pages 1728-1759, July.
  5. Gode, Dhananjay K & Sunder, Shyam, 1993. "Allocative Efficiency of Markets with Zero-Intelligence Traders: Market as a Partial Substitute for Individual Rationality," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 119-37, February.
  6. Li, Hongyan & Sun, Junjie & Tesfatsion, Leigh S., 2008. "Dynamic LMP Response Under Alternative Price-Cap and Price-Sensitive Demand Scenarios," Staff General Research Papers 12975, Iowa State University, Department of Economics.
  7. Li, Hongyan & Sun, Junjie & Tesfatsion, Leigh S., 2009. "Separation and Volatility of Locational Marginal Prices in Restructured Wholesale Power Markets," Staff General Research Papers 13075, Iowa State University, Department of Economics.
  8. Gode, Dhananjay K & Sunder, Shyam, 1997. "What Makes Markets Allocationally Efficient?," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 603-30, May.
  9. Kirman, Alan, 1993. "Ants, Rationality, and Recruitment," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 137-56, February.
  10. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
  11. Li, Hongyan & Tesfatsion, Leigh S., 2009. "Development of Open Source Software for Power Market Research: The AMES Test Bed," Staff General Research Papers 13069, Iowa State University, Department of Economics.
  12. Li, Hongyan & Tesfatsion, Leigh S., 2009. "Capacity Withholding in Restructured Wholesale Power Markets: An Agent-Based Test Bed Study," Staff General Research Papers 13070, Iowa State University, Department of Economics.
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