An Experimental Analysis of Single vs. Multiple Bids in Auctions of Divisible Goods
AbstractIn this paper we report on an experimental examination of the comparison between multiple and single bids in a discriminatory-price procurement auction of divisible goods. Having been inspired by energy trading, sellers with a portfolio comprising several cost-quantity pairs bid into a market with a single buyer. Depending on the treatment, they are allowed to submit either one or two bids constructed from their endowments. The allocation rule has no rationing, i.e. marginal bids are completely accepted. We specified both a low and a high competition scenario to evaluate the effects of competitive forces on both bidding regimes. We find that multiple bids have a calming effect on the market, reducing volatility substantially. However, this comes at the cost of lower profits for bidders, whereas auctioneer’s revenue is maximized. At the same time, supply reduction, which is equivalent to demand reduction in demand auctions, is more pronounced in the multiple-bid setting. A reason for this might be that expensive units are driven out of the market more easily in the multi-bid setting and they can no longer be offered without causing loss of market efficiency during dispatch.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN) in its series FCN Working Papers with number 8/2013.
Length: 37 pages
Date of creation: Apr 2013
Date of revision: Nov 2013
Divisible good auction; laboratory experiment; discriminatory pricing; multiple bids;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-20 (All new papers)
- NEP-COM-2013-07-20 (Industrial Competition)
- NEP-ENE-2013-07-20 (Energy Economics)
- NEP-EXP-2013-07-20 (Experimental Economics)
- NEP-GTH-2013-07-20 (Game Theory)
- NEP-REG-2013-07-20 (Regulation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Back, Kerry & Zender, Jaime F, 1993. "Auctions of Divisible Goods: On the Rationale for the Treasury Experiment," Review of Financial Studies, Society for Financial Studies, vol. 6(4), pages 733-64.
- Rosen, Christiane & Madlener, Reinhard, 2012. "Auction Design for Local Reserve Energy Markets," FCN Working Papers 7/2012, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN), revised Mar 2013.
- Noussair, C.N., 1995.
"Equilibria in a multi-object uniform price sealed bid auction with multi-unit demands,"
Open Access publications from Tilburg University
urn:nbn:nl:ui:12-381122, Tilburg University.
- Noussair, Charles, 1995. "Equilibria in a Multi-object Uniform Price Sealed Bid Auction with Multi-unit Demands," Economic Theory, Springer, vol. 5(2), pages 337-51, March.
- Fernando Branco, 1996. "Multiple unit auctions of an indivisible good," Economic Theory, Springer, vol. 8(1), pages 77-101.
- Veronika Grimm & Jaromir Kovarik & Giovanni Ponti, 2008.
"Fixed price plus rationing: an experiment,"
Springer, vol. 11(4), pages 402-422, December.
- Veronika Grimm & Giovanni Ponti & Jaromir Kovarik, 2006. "Fixed priced plus rationing: An experiment," Working Papers. Serie AD 2006-26, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- GRIMM, Veronika & KOVARIK, Jaromir & PONTI, Giovanni, 2005. "Fixed price plus rationing: an experiment," CORE Discussion Papers 2005039, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Martin Sefton & Ping Zhang, 2009.
"Divisible-good uniform price auctions: the role of allocation rules and communication among bidders,"
2009-21, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
- Martin Sefton & Ping Zhang, 2009. "Divisible-good uniform price auctions: the role of allocation rules and communication among bidders," Discussion Papers 2009-21, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
- Orly Sade & Charles Schnitzlein & Jaime F. Zender, 2006. "Competition and Cooperation in Divisible Good Auctions: An Experimental Examination," Review of Financial Studies, Society for Financial Studies, vol. 19(1), pages 195-235.
- Lawrence M. Ausubel & Peter Cramton, 1995. "Demand Reduction and Inefficiency in Multi-Unit Auctions," Papers of Peter Cramton 98wpdr, University of Maryland, Department of Economics - Peter Cramton, revised 22 Jul 2002.
- Alsemgeest, Paul & Noussair, Charles & Olson, Mark, 1998.
"Experimental Comparisons of Auctions under Single- and Multi-Unit Demand,"
Western Economic Association International, vol. 36(1), pages 87-97, January.
- Alsemgeest, P. & Noussair, C. & Olson, M., 1995. "Experimental Comparisons of Auctions Under Single and Multi Unit Demand," Purdue University Economics Working Papers 1078, Purdue University, Department of Economics.
- Bernard, John C. & Mount, Timothy D. & Schulze, William D., 1998. "Alternative Auction Institutions For Electric Power Markets," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 27(2), October.
- Klaus Abbink & Jordi Brandts & Paul Pezanis-Christou, 2002.
"Auctions for Government Securities: A Laboratory Comparison of Uniform, Discriminatory and Spanish Designs,"
UFAE and IAE Working Papers
551.02, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- 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.
- Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
- Rassenti, Stephen J & Reynolds, Stanley S & Smith, Vernon L, 1994. "Cotenancy and Competition in an Experimental Auction Market for Natural Gas Pipeline Networks," Economic Theory, Springer, vol. 4(1), pages 41-65, January.
- Orly Sade & Charles Schnitzlein & Jaime Zender, 2006. "Competition and cooperation in divisible good auctions: An experimental examination," Artefactual Field Experiments 00105, The Field Experiments Website.
- Tenorio, Rafael, 1997. "On Strategic Quantity Bidding in Multiple Unit Auctions," Journal of Industrial Economics, Wiley Blackwell, vol. 45(2), pages 207-17, June.
- Scott, James H & Wolf, Charles R, 1979. "The Efficient Diversification of Bids in Treasury Bill Auctions," The Review of Economics and Statistics, MIT Press, vol. 61(2), pages 280-87, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Yasin Sunak).
If references are entirely missing, you can add them using this form.