AUCTION DESIGN FOR COMPOSITE GOODS - THE NATURAL-GAS INDUSTRY

Experiments examine the price and efficiency performance of a simple production, parallel transmission and wholesale consumption model of a natural gas pipeline system. A center determines prices and allocations to buyers, producers and transporters to maximize surplus based on the location-specific bids of buyers, producers and transporters. Efficiency tends to grow asymptotically to 100% in stationary environments; prices stabilize quickly in the neighborhood of predicted competitive equilibrium levels. Over time agents settle into an equilibrium with elastic bid schedules and numerous tied bids and offers. These strategies allow each agent class to protect itself from manipulation by the other classes. © 1990.