The Influence of Information and Experience on Market Power in Emissions Trading Markets Ruled by a Multiple Unit Double Auction

Some Experimental Evidence

Abstract

In this article, we discuss selected methodological problems of previous Double Auction experi-ments and test the hypothesis that a Multiple Unit Double Auction (MUDA) is able to prevent market power in an emissions trading market. Additionally, we analyze how the information sub-jects receive about the market structure and different levels of subjects' experience influence the behavior. Based on a larger number of independent observations than analyzed in previous stud-ies, the experiment generates two main results. Firstly, emissions trading markets ruled by a MUDA realize a high degree of efficiency even under market power conditions. However, a MUDA is, in general, not able to restrict market power. We observe persistent price discrimina-tion in two market power environments, i.e. the distribution of profits is strongly shifted in favor of the strong market side without greatly harming efficiency. This result is independent of the in-formation to subjects about the market structure. Secondly, when subjects are experienced, the ef-ficiency is higher and the ability of the strong market side to exercise market power declines strongly. However, the variability of behavior is large and the strong market side is still able to re-alize supracompetitive profits in some groups.