Instructions to Participants
GAS MARKET - PIPELINE OPERATOR
to the Aton
Experimental Economics Laboratory. This is an experiment
analysing the economics of
decision making. You will be participating
as a pipeline operator engaged in
a market for gas.
You will be paid for participating in this session. The payment
has two compontents - a show-up fee of $5, and a performance payment
related to your decisions in the experiment. If
you make good
decisions you could make up to $30 (including the show-up fee) in this
session. Your earnings will be
you in cash at the end of the session.
Your screen will show
you a "laboratory dollar account balance". This is used to
calculate your performance payment. The
rate that we will use to convert laboratory
dollars to Australian
dollars is 7,000,000 lab dollars to one (1) Australian dollar.
The amount of money
depends on the decisions you make, so it
important to read and understand these instructions.
please do not look at other people's information or computer screen,
not talk. You are free to ask questions of the
decisions and payoff are private: do not discuss them with anyone
else in the room, during any breaks, or indeed at anytime.
study is conducted by the Aton
Economics Laboratory (AEElab).
about AEELab is available at http://www.aton.com.au
the experiment terminates early (for example, due
problems) all participants will be
paid on the basis of their experimental dollar
balance at the time of termination if this is determinable. If
this cannot be determined, only the show-up fee will be paid.
You are free to
experiment at any time. However if you leave before
the end of the experiment you will only receive your show-up fee.
no foreseeable risks or discomforts from your participation
in this experiment.
cash payment there are no direct peronal benefits for
All data collected
will be saved confidentially.
person-identifiable information will be reported in any published or
The Activities For Today Are:
of the experimental
instructions and getting logged in.
Signing of consent forms
Familiarisation trading session,
to learn how to use the trading screens
Experimental Session 1
The total time
required, including reading instructions and receiving
payment at the end of the experiment will be approximately 1.5
The familiarisation trading session is
just for practice, and does not count toward your
final earnings. This is for you to learn how to trade, and
to become familiar with
what affects your profit.
to the Market
You are playing the part
of two pipelines that supply gas to five gas retailers (Retailers A -
E) in a market for Gas. The market runs for 4 years, from
1/1/2001 to 31/12/2004. The
experiment will be measured in experimental days, each day being about
seconds. Your job is to make as much money as you can,
in any way you see fit. In broad terms, you can
make money by buying
gas from the
field, hauling it through your pipe, and selling it to the retailers. The
difference between your supply cost and your selling price is yours to
keep, after converting into Australian dollars. Ideally
you would like to sell a lot of gas at a very high price. However
the object is not to sell lots of gas, or to have a high price, but TO MAXIMISE YOUR PROFIT.
Clearly, as with any supplier, this means balancing the increased money
from only accepting bids at a high price against the fact that it would
reduce the volume you sell.
specifics of how to do this via the trading screens
will be discussed shortly.
You will be
able to buy gas from the upstream gas field supplier for a set price of
$9.00 per GigaJoule (GJ). Note that a GJ
simply a set quantity of gas. The
upstream gas price is
constant regardless of how much you or the other pipeline purchase, and
will be provided to you on demand as you enter contracts to supply
need not formally purchase gas from the gas fields.
addition to the gas-field price, you also incur a cost for hauling the
gas through your pipe. The haulage cost varies as the utilisation
of your pipe changes. As you increase the amount of gas you haul,
the cost of hauling the gas also increases. Thus your
cost-of-delivery is the gas-field
price plus your haulage cost. You will be shown on your screen
the cost potentially involved in meeting the demands from
retailers. To make a profit, you would want to sell gas to the
retailers at a price higher than your cost of delivery.
Retailers have a need for
gas because they
sell gas to end consumers. The retailers
make bids to buy gas from you when they need more gas. Retailer's bids appear on your screen, and are in
form of a price (in $/GJ) and a quantity (how many gigajoules of gas
wish to buy at that price.) You decide
which bids to accept. Note that the other
pipeline can also accept
bids, and will be competing with you for sales to retailers.
accept a retailer's bid you are contracting with the retailer to
over 20 days. So the daily supply you
provide to the retailer is the total GJ quantity that they
their bid, divided by 20. For
if the bid you accepted was for a quantity of 2,000 GJ, you are
retailer with 100 GJ each day for 20 days from the date you accept
their bid. Each day the retailer will pay you for the gas
supplied that day.
Q) The gas field price is $9.00/GJ, your current haulage cost is
$1.00/GJ, thus your delivery cost is $10.00/GJ. A retailer has a
bid in the market for 4,000GJ at a price of $11/GJ. If you
how much profit will you make? How much will you earn each day ?
If you accept, you make a profit of
$1.00/GJ on each GJ delivered. The 4,000GJ will be delivered over
20 days. Thus you will deliver 200 GJ each day. Thus each
day, for the next 20 days, your bank balance will go up by $1.00 * 200
= $200/day. Your total profit on the contract will be $4,000.
a finite capacity - so there is
a limit on the amount of gas you can transport. When your
pipe is at capacity you will be unable to accept any retailer's bid
that would have the effect of over-using your pipe. As current
supply contracts reach the end of their 20 day life, capacity will
re-appear on your pipe. That is, you will not be
able to sell more gas than you can physically move through your pipe.
The Trading Screen
When the experiment
commences, you will see a screen similar to the one below. We
will now introduce you to the trading screen.
top bar of the window shows the current date, and your current bank
experimental dollars. It is on this
experimental bank balance that you will be paid at the end of the
experiment. Your final payment in Australian dollars will be
calculated as the difference in your opening balance, and your final
balance. That is, your opening balance will not be used in
calculating your final payment. Each time you make or lose money
your bank balance is updated and you will see a
small up/down arrow next to the bank balance. This is indicating
if the last change to your bank balance was an increase or a decrease.
Notice the "Retailer Bids
Currently In the Market" area, which are the bids from retailers to buy
your gas. It shows you who the retailer is, the date the bid was
made (bids expire after 20 days), the price per gigajoule they are
willing to pay, total quantity, the daily quantity, the cost to you if
you accept this bid, the daily profit of this contract, and the total
profit. If you wish to accept a
particular bid, click on that bid, and when presented with the
pop-up menu, select "accept". Once you have accepted a bid it
becomes a "Current Supply Contract", listed in the window below.
This means that you will
supply the contracted quantity of gas (in GJ) to the retailer, in equal
daily amounts, for the next 20 days. As you have more and more
active supply contracts, the utilisation of your pipe will increase.
right of these windows is your pipe information area. In the
upper left corner of this area lists the constant $9.00 well head
price, and the current haulage cost. This haulage cost will
increase as you supply more gas. Note that this cost is applied
to all gas supplied. So you may have sold gas to retailers when
your haulage is low, but if you increase the haulage, the haulage cost
goes up. The pipe on the left is your pipe, and indicates how
much gas you are hauling. The pipe on the right is your
competitors pipe. Below each pipe is listed how much gas you are
hauling, how much you can add to this, and your total haulage capacity. The
capacity of your pipe is measured
in TeraJoules (TJ). A TJ is simply 1,000 GJ.
In the event that a retailer runs out
of gas to supplier their customers, a "default bid" will be placed into
the market. Default bids are priced at your current cost of
supply (so you make no profit on them), and you will be forced to
automatically accept them. This means that if you attempt to
withhold supply to the point where one or more retailers run out of
gas, gas will be forceably supplied. (You can consider this as
being the government intervening to ensure that gas supply is
maintained). Default bids are labelled as such when they appear
in your supply contracts. Like all other contracts, a default
contract lasts for 20 days.
If you have
any questions, please raise your hand and ask the experimenter.
Last Updated: 2nd February 2007
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