On the Informational Inefficiency of Discriminatory Price Auctions

We analyze bidding behavior in large discriminatory price auctions where the number of objects is a non-trivial proportion of the number of bidders. Bidders observe private signals that are affiliated with the common value. We show that the average price in the auction is biased downward from the expected value of the objects, even in the competitive limit. In particular, we show that conditional on relatively low signals, bidders bid the expected value of the objects conditional on their information and winning; while bids at higher signals flatten out and are below the expected value conditional on winning

Modeling Electricity Auctions

The recent debates over discriminatory versus uniform-price auctions in the UK and elsewhere have revealed an incomplete understanding of the limitations of some popular auction models when applied to real-world electricity markets. This has led certain regulatory authorities to prefer discriminatory auctions on the basis of reasoning from models which are not directly applicable to any existing electricity market. Vickrey auctions, although often recommended by economists, have also been ignored in these debates. This article describes the approach which we believe should be taken to analyzing these issues

Modeling Electricity Auctions

The recent debates over discriminatory versus uniform-price auctions in the UK and elsewhere have revealed an incomplete understanding of the limitations of some popular auction models when applied to real-world electricity markets. This has led certain regulatory authorities to prefer discriminatory auctions on the basis of reasoning from models which are not directly applicable to any existing electricity market. Vickrey auctions, although often recommended by economists, have also been ignored in these debates. This article describes the approach which we believe should be taken to analyzing these issues.electricity markets, auctions, Vickrey auctions

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

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.Experiments, asymmetric information, discriminatory price auctions, uniform price auctions, electricity industries

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

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

Auctions and trading in energy markets -- an economic analysis

Auctions and trading in energy markets -- an economic analysi

Auctions for Split-Award Contracts

The buyer of a homogeneous input employs split-award contracting to divide his input requirements into two contracts that are awarded to different suppliers. The buyer uses a sequential second-price auction to award a larger primary contract and a smaller secondary contract. With a fixed number of suppliers participating in the auctions, we find that the buyer pays a higher expected price than with a sole-source auction. The premium paid to the winner of the secondary contract must also be paid to the winner of the primary contract as an opportunity cost of not winning the secondary contract. With fixed costs of participating in the auction, we identify the conditions under which a secondary contract can increase the number of suppliers and lower the expected price paid by the buyer. An optimal secondary contract can internalize the cost reductions from the new industry capacity and extract the rents of the suppliers. An optimal secondary contract can be particularly beneficial when the number of suppliers is limited by high fixed costs.

Asset Auctions, Information, and Liquidity

A model is presented of a uniform price auction where bidders compete in demand schedules; the model allows for common and private values in the absence of exogenous noise. It is shown how private information yields more market power than the levels seen with full information. Results obtained here are broadly consistent with evidence from asset auctions, may help explain the response of central banks to the crisis, and suggest potential improvements in the auction formats of asset auctions.adverse selection, market power, reverse auctions, bid shading

Exploring Environmental Service Auctions

The chapters of this dissertation explore related aspects of the procurement of conservation services from private landowners. In the first chapter, heuristic laboratory experiments reveal the impact of potential government regulation on strategic forces and efficiency properties in conservation procurement auctions. In the second chapter, data from past procurement auctions are analyzed to discover the existence and magnitude of premiums received by auction participants. The first Chapter, “Procurement Auctions Under Regulatory Threat,” examines how strategic forces and efficiency properties are impacted in auctions for the procurement of environmental services when a threat of regulation is levied. Laboratory experiments examining different regulatory environments demonstrate that a threat of regulation will reduce the amount of public funds necessary to purchase a given level of environmental services. However, adverse selection costs and equity are negatively impacted by threat implementation. The second Chapter, “Estimating Bid Inflation in Procurement of Environmental Services,” studies the size of premiums received by program participants in conservation programs. Predictions informed by economic literature and theory elicit the underlying value distribution for a unique dataset of procurement auctions. Average premiums for auction participants range from almost 50 percent to less than 1 percent across auction periods and institutions. The results demonstrate that both repetition and rule variation may improve the efficiency of procurement auctions. The auctions studied here are shown to yield efficiency improvements of more than 32 percent over standard fixed-payment schemes for service procurement