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Asymmetric Demand Information in Uniform and Discriminatory Call Auctions: An Experimental Analysis Motivated by Electricity Markets

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  • Abbink, Klaus
  • Brandts, Jordi
  • McDaniel, Tanga

Abstract

We study experimental multi-unit uniform and discriminatory auctions with demand uncertainty, motivated by the ongoing debate about market design in the electricity industry. We study the effect of asymmetric demand-information in the two auction institutions. In our treatment condition some sellers have less information than in our baseline conditions. In both conditions transaction prices and price volatility are not significantly different under the two auction institutions. However, under asymmetric information discriminatory auctions are significantly less efficient. These results are not in line with typical arguments made in favor of discriminatory pricing in electricity industries; namely, lower prices and less volatility. Copyright 2003 by Kluwer Academic Publishers

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  • Abbink, Klaus & Brandts, Jordi & McDaniel, Tanga, 2003. "Asymmetric Demand Information in Uniform and Discriminatory Call Auctions: An Experimental Analysis Motivated by Electricity Markets," Journal of Regulatory Economics, Springer, vol. 23(2), pages 125-144, March.
  • Handle: RePEc:kap:regeco:v:23:y:2003:i:2:p:125-44
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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 109-123, 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 1276-1283, 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 461-477, June.
    5. Kagel, John H & Levin, Dan, 2001. "Behavior in Multi-unit Demand Auctions: Experiments with Uniform Price and Dynamic Vickrey Auctions," Econometrica, Econometric Society, vol. 69(2), pages 413-454, March.
    6. 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 757-785.
    7. 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.
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    Cited by:

    1. 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, January.
    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. Carine Staropoli & Celine Jullien, 2006. "Using Laboratory Experiments to Design Efficient Market Institutions: The case of wholesale electricity markets," Post-Print hal-00569121, HAL.
    4. 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.
    5. Céline Jullien & Stephen Rassenti & Abel Winn, 2008. "Demande active sur les marchés électriques : une analyse expérimentale de l'efficacité du mécanisme de retrait de capacités demandées," Economie & Prévision, La Documentation Française, vol. 0(1), pages 61-76.
    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. Chen, Yue & Wei, Wei & Liu, Feng & Shafie-khah, Miadreza & Mei, Shengwei & Catalão, João P.S., 2018. "Optimal contracts of energy mix in a retail market under asymmetric information," Energy, Elsevier, vol. 165(PB), pages 634-650.
    8. Chloé Coq & Henrik Orzen & Sebastian Schwenen, 2017. "Pricing and capacity provision in electricity markets: an experimental study," Journal of Regulatory Economics, Springer, vol. 51(2), pages 123-158, April.
    9. Kentaro Kawasaki & Takeshi Fujie & Kentaro Koito & Norikazu Inoue & Hiroki Sasaki, 2012. "Conservation Auctions and Compliance: Theory and Evidence from Laboratory Experiments," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 52(2), pages 157-179, June.
    10. Carine Staropoli & Céline Jullien, 2006. "Using Laboratory Experiments To Design Efficient Market Institutions: The Case Of Wholesale Electricity Markets," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 77(4), pages 555-577, December.
    11. Carine Staropoli & Celine Jullien, 2006. "Using Laboratory Experiments to Design Efficient Market Institutions: The case of wholesale electricity markets," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00569121, HAL.
    12. Damianov, Damian S. & Oechssler, Jörg & Becker, Johannes Gerd, 2010. "Uniform vs. discriminatory auctions with variable supply - experimental evidence," Games and Economic Behavior, Elsevier, vol. 68(1), pages 60-76, January.
    13. Hans‐Theo Normann & Roberto Ricciuti, 2009. "Laboratory Experiments For Economic Policy Making," Journal of Economic Surveys, Wiley Blackwell, vol. 23(3), pages 407-432, July.
    14. 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.
    15. 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.
    16. Bunn, Derek W. & Oliveira, Fernando S., 2007. "Agent-based analysis of technological diversification and specialization in electricity markets," European Journal of Operational Research, Elsevier, vol. 181(3), pages 1265-1278, September.
    17. Bastian Henze & Charles Noussair & Bert Willems, 2012. "Regulation of network infrastructure investments: an experimental evaluation," Journal of Regulatory Economics, Springer, vol. 42(1), pages 1-38, August.
    18. Luca Grilli, 2010. "Deregulated Electricity Market and Auctions: the Italian case," Quaderni DSEMS lg_ib_2010, Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia.
    19. Brandts, Jordi & Giritligil, Ayça Ebru, 2008. "Entry and market selection of firms: A laboratory study," Journal of Economic Behavior & Organization, Elsevier, vol. 68(3-4), pages 593-612, December.
    20. Derek W. Bunn & Fernando S. Oliveira, 2008. "Modeling the Impact of Market Interventions on the Strategic Evolution of Electricity Markets," Operations Research, INFORMS, vol. 56(5), pages 1116-1130, October.

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    More about this item

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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