An Experimental Analysis of Single vs. Multiple Bids in Auctions of Divisible Goods
FCN Working Paper No. 8/2013 (revised November 2013)
37 Pages Posted: 19 Jul 2013 Last revised: 20 Nov 2013
Date Written: April 2013
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.
Keywords: Divisible good auction, laboratory experiment, discriminatory pricing, multiple bids
JEL Classification: C72, C91, D44
Suggested Citation: Suggested Citation