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Asymmetric demand information in uniform and discriminatory call auctions: an experimental analysis motivated by electricity markets

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  • Klaus Abbink
  • Jordi Brandts

    ()

  • Tanga McDaniel

Abstract

We study the outcomes of experimental multi-unit uniform and discriminatory auctions with demand uncertainty. Our study is motivated by the ongoing debate about market design in the electricity industry. Our main aim is to compare the effect of asymmetric demand-information between sellers on the performance of the two auction institutions. In our baseline conditions all sellers have the same information, whereas in our treatment conditions some sellers have better information than others. In both information conditions we find that average transaction prices and price volatility are not significantly different under the two auction institutions. However, when there is asymmetric information among sellers the discriminatory auction is significantly less efficient. These results are not in line with the typical arguments made in favor of discriminatory pricing in electricity industries; namely, lower consumer prices and less price volatility. Moreover, our results provide some indication that discriminatory auctions reduce technical efficiency relative to uniform auctions.

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Bibliographic Info

Paper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number 520.02.

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Length: 25
Date of creation: 01 Feb 2002
Date of revision:
Handle: RePEc:aub:autbar:520.02

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Keywords: Experiments; asymmetric information; discriminatory price auctions; uniform price auctions; electricity industries;

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References

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  1. Klaus Abbink & Jordi Brandts & Paul Pezanis-Christou, 2001. "The Spanish Auction for Government Securities: A Laboratory Analysis," UFAE and IAE Working Papers 482.02, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  2. Rassenti, Stephen J & Smith, Vernon L & Wilson, Bart J, 2003. "Discriminatory Price Auctions in Electricity Markets: Low Volatility at the Expense of High Price Levels," Journal of Regulatory Economics, Springer, vol. 23(2), pages 109-23, March.
  3. McCabe, Kevin A & Rassenti, Stephen J & Smith, Vernon L, 1990. "Auction Institutional Design: Theory and Behavior of Simultaneous Multiple-Unit Generalizations of the Dutch and English Auctions," American Economic Review, American Economic Association, vol. 80(5), pages 1276-83, December.
  4. Van Boening, Mark V & Wilcox, Nathaniel T, 1996. "Avoidable Cost: Ride a Double Auction Roller Coaster," American Economic Review, American Economic Association, vol. 86(3), pages 461-77, June.
  5. Goswami, Gautam & Noe, Thomas H & Rebello, Michael J, 1996. "Collusion in Uniform-Price Auctions: Experimental Evidence and Implications for Treasury Auctions," Review of Financial Studies, Society for Financial Studies, vol. 9(3), pages 757-85.
  6. Alfred E. Kahn & Peter Cramton & Robert H. Porter & Richard D. Tabors, 2001. "Pricing in the California Power Exchange Electricity Market: Should California Switch from Uniform Pricing to Pay-as-Bid Pricing?," Papers of Peter Cramton 01calpx, University of Maryland, Department of Economics - Peter Cramton, revised 27 Jan 2001.
  7. Abbink, Klaus & Abdolkarim Sadrieh, 1995. "RatImage - research Assistance Toolbox for Computer-Aided Human Behavior Experiments," Discussion Paper Serie B 325, University of Bonn, Germany.
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Cited by:
  1. Jordi Brandts & Ayça Ebru Giritligil, 2006. "Entry and Market Selection of Firms: A Laboratory Study," Working Papers 299, Barcelona Graduate School of Economics.
  2. Jay R. Corrigan & Matthew C. Rousu, 2006. "Posted Prices and Bid Affiliation: Evidence from Experimental Auctions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(4), pages 1078-1090.
  3. Hans-Theo Normann & Roberto Ricciuti, 2009. "Laboratory Experiments For Economic Policy Making," Journal of Economic Surveys, Wiley Blackwell, vol. 23(3), pages 407-432, 07.
  4. Christian Vossler & Timothy Mount & Robert Thomas & Ray Zimmerman, 2009. "An experimental investigation of soft price caps in uniform price auction markets for wholesale electricity," Journal of Regulatory Economics, Springer, vol. 36(1), pages 44-59, August.
  5. Jordi Brandts & Paul Pezanis-Christou & Arthur Schram, 2008. "Competition with forward contracts: a laboratory analysis motivated by electricity market design," Economic Journal, Royal Economic Society, vol. 118(525), pages 192-214, 01.
  6. Newbery, D. & Tanga McDaniel, 2002. "Auctions and trading in energy markets -- an economic analysis," Cambridge Working Papers in Economics 0233, Faculty of Economics, University of Cambridge.
  7. Carine Staropoli & Celine Jullien, 2006. "Using Laboratory Experiments to Design Efficient Market Institutions: The case of wholesale electricity markets," Grenoble Ecole de Management (Post-Print) hal-00569121, HAL.
  8. Abbink, Klaus & Brandts, Jordi & Pezanis-Christou, Paul, 2006. "Auctions for government securities: A laboratory comparison of uniform, discriminatory and Spanish designs," Journal of Economic Behavior & Organization, Elsevier, vol. 61(2), pages 284-303, October.
  9. Zou, Xiaoyan, 2009. "Double-sided auction mechanism design in electricity based on maximizing social welfare," Energy Policy, Elsevier, vol. 37(11), pages 4231-4239, November.

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