Modelling Bidding Behaviour on German Photovoltaic Auctions

In this article renewable energy support allocation through different types of auctions are assessed. The applied methodological framework is auction theory, based on the rules governing the German photovoltaic (PV) Feed-in Premium (FIP) auctions. The work focuses on bidding strategies based on an extended levelised cost of electricity (LCOE) methodology, comparing two different set of rules: uniform price and pay-as-bid. When calculating the optimal bids an iteration is developed to find the Nash-equilibrium optimal bidding strategy. When searching for the bid function, not only strictly monotone functions, but also monotone functions are considered, extending the framework typically applied in auction theory modelling. The results suggest that the PV support allocation in the German auction system would be more cost efficient using the uniform pricing rule, since many participants bid above their true valuation in the pay-as-bid auction Nash-equilibrium. Thus from a cost minimising perspective, the application of uniform pricing rule would be a better policy decision.

Going, going, gone: competitive decision-making in Dutch auctions

In a Dutch auction, an item is offered for sale at a set maximum price. The price is then gradually lowered over a fixed interval of time until a bid is made, securing the item for the bidder at the current price. Bidders must trade-off between certainty and price: bid early to secure the item and you pay a premium; bid later at a lower price but risk losing to another bidder. These properties of Dutch auctions provide new opportunities to study competitive decision-making in a group setting. We developed a novel computerised Dutch auction platform and conducted a set of experiments manipulating volatility (fixed vs varied number of items for sale) and price reduction interval rate (step-rate). Triplets of participants ($$N=66$$ N = 66 ) competed with hypothetical funds against each other. We report null effects of step-rate and volatility on bidding behaviour. We developed a novel adaptation of prospect theory to account for group bidding behaviour by balancing certainty and subjective expected utility. We show the model is sensitive to variation in auction starting price and can predict the associated changes in group bid prices that were observed in our data.

Release of Construction Clients’ Pre-tender Cost Estimates: An Experimental Study

Clients engage consultant quantity surveyors or cost engineers to perform project cost estimates before calling for tender submissions. This experimental study examines the impact of releasing the clients’ pre-tender cost estimates prior to bidding on student subjects’ bidding behavioural patterns, and the extents to which their bidding tends to agree with the behavioural patterns proposed by Milgrom and Weber’s theory. The results show that the provision of clients’ pre-tender cost estimates prior to bidding does affect bidders’ bidding behaviour. Bidders with access to the clients’ pre-tender cost estimates prior to bidding, on average, recorded lower bids than those with no access to the estimate. However, the lower average bids do not result in statistically significant lower winning bids. These findings provide evidence in support of Milgrom and Weber’s theory, demonstrating the practicality of an experimental approach using student subjects for testing theories in building economics research. The practical implication is that construction clients would need to consider their information policy on releasing pre-tender cost estimates to enhance efficiency in their procurement for construction services.