The Role of Information Feedback in Local Reserve Energy Auction Markets

Abstract

In any market, the amount of feedback provided to its participants is one of the most important design choices. In the last couple of decades, several studies on feedback information in games and its role in learning have been conducted. Some of the most notable ones are the results in learning direction theory (Selten & Stoecker, 1986), impulse balance theory (Ockenfels & Selten, 2005), and the findings by Weber (2003). All these approaches have been validated experimentally in single-unit first price auctions (e.g. Dufwenberg & Gneezy, 2002). As the focus of previous studies has been on this specific type of auction, there is little research on information feedback in multi-unit or divisible good auctions. A natural extension to the current literature is to examine the effect of auction round feedback in the latter auction formats. We contribute to this field of research by conducting such a feedback information experiment with an energy market framing. Sellers are endowed with a portfolio of various quantities at different costs. The auctioneer is a single buyer who needs to procure a fixed quantity. We investigate two treatment variables: the strength of competition and, more importantly, the amount of information provided. With regard to previous findings from single-unit first price auctions, we can confirm the influence of feedback on learning and the change in bidder behavior for the divisible good auction case. However, the impact of the competitive situation was generally stronger than the feedback effect. Also, we observe significant differences for socio-demographic factors such as gender and educational background.

Keywords: feedback information, divisible good auction, laboratory experiment, reserve energy market

JEL Classification: C91, D03, D44, D83