IDEAS home Printed from https://ideas.repec.org/p/ris/fcnwpa/2013_008.html
   My bibliography  Save this paper

An Experimental Analysis of Single vs. Multiple Bids in Auctions of Divisible Goods

Author

Listed:
  • Rosen, Christiane

    () (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN))

  • Madlener, Reinhard

    () (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN))

Abstract

In 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.

Suggested Citation

  • Rosen, Christiane & Madlener, Reinhard, 2013. "An Experimental Analysis of Single vs. Multiple Bids in Auctions of Divisible Goods," FCN Working Papers 8/2013, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN), revised Nov 2013.
  • Handle: RePEc:ris:fcnwpa:2013_008
    as

    Download full text from publisher

    File URL: http://www.fcn.eonerc.rwth-aachen.de/global/show_document.asp?id=aaaaaaaaaagvvzh
    File Function: Full text
    Download Restriction: no

    References listed on IDEAS

    as
    1. Fernando Branco, 1996. "Multiple unit auctions of an indivisible good," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 8(1), pages 77-101.
    2. Martin Sefton & Ping Zhang, 2014. "Divisible-good uniform price auctions: The role of allocation rules and communication among bidders," Research in Experimental Economics,in: Experiments in Financial Economics, volume 16, pages 53-86 Emerald Publishing Ltd.
    3. Lawrence M. Ausubel & Peter Cramton & Marek Pycia & Marzena Rostek & Marek Weretka, 2014. "Demand Reduction and Inefficiency in Multi-Unit Auctions," Review of Economic Studies, Oxford University Press, vol. 81(4), pages 1366-1400.
    4. Veronika Grimm & Jaromir Kovarik & Giovanni Ponti, 2008. "Fixed price plus rationing: an experiment," Experimental Economics, Springer;Economic Science Association, vol. 11(4), pages 402-422, December.
    5. Bernard, John C. & Mount, Timothy & Schulze, William, 1998. "Alternative Auction Institutions for Electric Power Markets," Agricultural and Resource Economics Review, Cambridge University Press, vol. 27(02), pages 125-131, October.
    6. Alsemgeest, Paul & Noussair, Charles & Olson, Mark, 1998. "Experimental Comparisons of Auctions under Single- and Multi-Unit Demand," Economic Inquiry, Western Economic Association International, vol. 36(1), pages 87-97, January.
    7. 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 280-287, May.
    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, pages 284-303.
    9. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
    10. 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;Society for the Advancement of Economic Theory (SAET), vol. 4(1), pages 41-65, January.
    11. Tenorio, Rafael, 1997. "On Strategic Quantity Bidding in Multiple Unit Auctions," Journal of Industrial Economics, Wiley Blackwell, vol. 45(2), pages 207-217, June.
    12. 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.
    13. 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.
    14. 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.
    15. 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.
    16. Noussair, Charles, 1995. "Equilibria in a Multi-object Uniform Price Sealed Bid Auction with Multi-unit Demands," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 5(2), pages 337-351, March.
    17. 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 733-764.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rohlfs, Wilko & Madlener, Reinhard, 2013. "Challenges in the Evaluation of Ultra-Long-Lived Projects: Risk Premia for Projects with Eternal Returns or Costs," FCN Working Papers 13/2013, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).

    More about this item

    Keywords

    Divisible good auction; laboratory experiment; discriminatory pricing; multiple bids;

    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, Pricing, and Design - - - Auctions

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ris:fcnwpa:2013_008. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Hendrik Schmitz). General contact details of provider: http://edirc.repec.org/data/fceonde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.