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Economics Experiments
The price-effect of transparency (REMIT)


              Silvester van Koten
                 CERGE-EI, Prague
   Laboratoř experimentální ekonomie (LEE), Prague


               Andreas Ortmann
     The University of New South Wales, Sydney
1. Theoretical Economics
Engineering
1. Theoretical Physics
2. Bridge model experimentation
3. Bridge
1. Theory             2. Engineering               3. Implementation
 Theoretical Physics      Bridge Experimentation              Bridge




Theoretical Economics   Market Experimentation          Competitive Market
                         Experimental & Computational      Energy Market
                                 Economics
• What effects have different
  arrangements?
  1. Making (forward) markets more
     transparent (REMIT):
    • Effect on prices?
  1. Way of procuring ancillary services:
    • System Marginal Price (SMP)
    • Pay-as-Bid (PaB)?
Laboratoř experimentální ekonomie
Earnings are paid in cash at the end of the session
2. Making (forward) markets more transparent
   (REMIT)
Introduction Setup Results        Behavioral Structural   Design

     2
     3
     4
Week 1
     5




                                         Spot Market
Friday
                    A
                             20                Demand

                    B                      p (Q ) = 60 − Q
                             20
                                        Q=20+20=40
                                        P=20
Introduction Setup Results        Behavioral Structural    Design

     2
     3
     4
Week 1
     5                                   Forward Market
Monday               A       12
                                                Trader
                     B                                    24
                             12


                                                               24
                                         Spot Market
Friday
                     A       12
                                               Demand

                     B                     p (Q ) = 60 − Q
                             12
                                        Q=12+12+24=48
                                        P=12
Introduction Setup Results   Behavioral Structural   Design

             2
             3
                                Spot Market
      Spot Market                    +
                               Forward Market

  p (Q) = 60 − Q                p (Q) = 60 − Q

  Quantity =40                  Quantity =48
  Price    =20                  Price    =12
Introduction Setup Results   Behavioral Structural   Design Predictions
Introduction Setup Outcomes                Results Conclusion

                                   M2, M2F, M3
    1000




                                                       M2
    900
Spot Price
 800700
    600




             4   8       12            16   20    24
                              Period
Introduction Setup Outcomes                Results Conclusion

                                   M2, M2F, M3
    1000




                                                       M2
    900




                                                              Effect
                                                              competition
Spot Price




                                                       M3
 800700
    600




             4   8       12            16   20    24
                              Period
Introduction Setup Outcomes                Results Conclusion

                                   M2, M2F, M3
    1000




                                                       M2
    900
Spot Price




                                                       M3
 800




                                                              Effect
                                                       M4     competition
    700
    600




             4   8       12            16   20    24
                              Period
Introduction Setup Outcomes                Results Conclusion

                                   M2, M2F, M3
    1000




                                                       M2
    900




                                                               Effect FM
Spot Price




                                                               transparency
                                                       M3
 800




                                                       M4
                                                       M2F
    700
    600




             4   8       12            16   20    24
                              Period
Introduction Setup Outcomes
    1000                                         Results Conclusion




                                                       M2
    900
Spot Price




                                                                 Effect FM
                                                       M3
 800




                                                               transparency
                                                                  LARGER
                                                       M2F     effect adding
    700




                                                                competitor
    600




             4   8       12            16   20    24
                              Period
Introduction Setup Outcomes                Results Conclusion

                                   M2, M2F, M3
    1000




                                                       M2
    900
Spot Price




                                                       M3
 800




                                                               Effect FM
                                                    M2F        transparency
    700




                                                    M3F
    600




             4   8       12            16   20    24
                              Period
Introduction Setup Outcomes                Results Conclusion

                                   M2, M2F, M3
    1000




                                                       M2
    900
Spot Price




                                                       M3
 800




                                                       M4         Effect FM
                                                                transparency
                                                               LARGER THAN
    700




                                                                    Effect
                                                    M3F          competition
    600




             4   8       12            16   20    24
                              Period
• What effects have different
  arrangements?
  1. Making (forward) markets more
     transparent (REMIT):
     • Effect on prices?


  A considerable downwards pressure on prices is likely
  from the competitive effect of a transparent forward
  markets
• What effects have different
  arrangements?
  1. Making (forward) markets more
     transparent (REMIT):
    • Effect on prices?
  1. Way of procuring ancillary services:
    • System Marginal Price (SMP)
    • Pay-as-Bid (PaB)?
1.Procuring ancillary reserves
Uniform price auction
                                      Needed
                 Price                reserves
                                                                      Bids



      System
      Marginal
       Price                                       Profit
                                                     s
                                      Profit
                         Profit         s
                           s




                         1   2    3   4   5    6   7   8    9   10   11 12
                                                                     Quantity
1.Procuring ancillary reserves
Pay-as-bid auction
                                     Needed
               Price                 reserves
                                                                     Bids

  Zero
 profit!
                                                  Price
                                                       3


                                     Price
                                          2


                       Price 1

                       1   2     3   4   5    6   7   8    9   10   11 12
                                                                    Quantity
1.Procuring ancillary reserves
Pay-as-bid auction
                                    Needed
               Price                reserves
                                                                    Costs




                                                 Profit
                                                   s
                                    Profit
                       Profit         s
                         s




                       1   2    3   4   5    6   7   8    9   10   11 12
                                                                   Quantity
What is the best way to procure ancillary
reserves?


  “It depends on the particulars of
  the setting.”

  Peter Cramton & Steven Soft,
  The electricity journal 2006.
Van koten  economics experiments_ 2013.02.27

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The Pfandbrief Roundtable 2024 - Covered Bonds
 

Van koten economics experiments_ 2013.02.27

  • 1. Economics Experiments The price-effect of transparency (REMIT) Silvester van Koten CERGE-EI, Prague Laboratoř experimentální ekonomie (LEE), Prague Andreas Ortmann The University of New South Wales, Sydney
  • 5. 2. Bridge model experimentation
  • 7. 1. Theory 2. Engineering 3. Implementation Theoretical Physics Bridge Experimentation Bridge Theoretical Economics Market Experimentation Competitive Market Experimental & Computational Energy Market Economics
  • 8. • What effects have different arrangements? 1. Making (forward) markets more transparent (REMIT): • Effect on prices? 1. Way of procuring ancillary services: • System Marginal Price (SMP) • Pay-as-Bid (PaB)?
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  • 12. Earnings are paid in cash at the end of the session
  • 13. 2. Making (forward) markets more transparent (REMIT)
  • 14. Introduction Setup Results Behavioral Structural Design 2 3 4 Week 1 5 Spot Market Friday A 20 Demand B p (Q ) = 60 − Q 20 Q=20+20=40 P=20
  • 15. Introduction Setup Results Behavioral Structural Design 2 3 4 Week 1 5 Forward Market Monday A 12 Trader B 24 12 24 Spot Market Friday A 12 Demand B p (Q ) = 60 − Q 12 Q=12+12+24=48 P=12
  • 16. Introduction Setup Results Behavioral Structural Design 2 3 Spot Market Spot Market + Forward Market p (Q) = 60 − Q p (Q) = 60 − Q Quantity =40 Quantity =48 Price =20 Price =12
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  • 18. Introduction Setup Results Behavioral Structural Design Predictions
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  • 20. Introduction Setup Outcomes Results Conclusion M2, M2F, M3 1000 M2 900 Spot Price 800700 600 4 8 12 16 20 24 Period
  • 21. Introduction Setup Outcomes Results Conclusion M2, M2F, M3 1000 M2 900 Effect competition Spot Price M3 800700 600 4 8 12 16 20 24 Period
  • 22. Introduction Setup Outcomes Results Conclusion M2, M2F, M3 1000 M2 900 Spot Price M3 800 Effect M4 competition 700 600 4 8 12 16 20 24 Period
  • 23. Introduction Setup Outcomes Results Conclusion M2, M2F, M3 1000 M2 900 Effect FM Spot Price transparency M3 800 M4 M2F 700 600 4 8 12 16 20 24 Period
  • 24. Introduction Setup Outcomes 1000 Results Conclusion M2 900 Spot Price Effect FM M3 800 transparency LARGER M2F effect adding 700 competitor 600 4 8 12 16 20 24 Period
  • 25. Introduction Setup Outcomes Results Conclusion M2, M2F, M3 1000 M2 900 Spot Price M3 800 Effect FM M2F transparency 700 M3F 600 4 8 12 16 20 24 Period
  • 26. Introduction Setup Outcomes Results Conclusion M2, M2F, M3 1000 M2 900 Spot Price M3 800 M4 Effect FM transparency LARGER THAN 700 Effect M3F competition 600 4 8 12 16 20 24 Period
  • 27. • What effects have different arrangements? 1. Making (forward) markets more transparent (REMIT): • Effect on prices? A considerable downwards pressure on prices is likely from the competitive effect of a transparent forward markets
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  • 29. • What effects have different arrangements? 1. Making (forward) markets more transparent (REMIT): • Effect on prices? 1. Way of procuring ancillary services: • System Marginal Price (SMP) • Pay-as-Bid (PaB)?
  • 30. 1.Procuring ancillary reserves Uniform price auction Needed Price reserves Bids System Marginal Price Profit s Profit Profit s s 1 2 3 4 5 6 7 8 9 10 11 12 Quantity
  • 31. 1.Procuring ancillary reserves Pay-as-bid auction Needed Price reserves Bids Zero profit! Price 3 Price 2 Price 1 1 2 3 4 5 6 7 8 9 10 11 12 Quantity
  • 32. 1.Procuring ancillary reserves Pay-as-bid auction Needed Price reserves Costs Profit s Profit Profit s s 1 2 3 4 5 6 7 8 9 10 11 12 Quantity
  • 33. What is the best way to procure ancillary reserves? “It depends on the particulars of the setting.” Peter Cramton & Steven Soft, The electricity journal 2006.