Bidding behaviour in the multi-unit Vickrey and uniform price auctions

Theory provides limited understanding of auctions in complex, multi-unit settings. This absence became apparent when performance concerns were raised over wholesale electric power auctions in England and California. This research used experiments involving 234 subjects to partially bridge the gap in knowledge with regard to bidding behaviour. Using a complex procurement setting motivated by power markets, bidding in the last accepted and first rejected uniform price auctions and the multi-unit Vickrey were examined across group sizes of 2, 4, and 6. To allow opportunity for tacit collusion, constant cost and demand conditions were maintained for 75 periods. Group size and experience were found to be most significant in explaining the differences between bids and costs. For groups of 2, this difference was significantly higher than with the other sizes, suggesting market power. Across sizes, after experience there was no significant difference in bidding behaviour between the uniform price auctions, with subjects in both bidding well above costs. Differences in the multi-unit Vickrey decreased after experience but, unexpectedly, bids were often below costs. Under no combinations did bids equal costs as would be desired by market designers. Results should give concern to policy analysts, and research suggestions to theorists.