GAS MARKET - GAS RETAILER

Introduction

Welcome to the Aton Experimental Economics Laboratory. This is an experiment analysing the economics of decision making. You will be participating as a gas retailer engaged in a market for gas. If you make good decisions you could make up to $25 in the experiment that will be paid to you in cash at the end of the experiment. The rate that we will use to convert laboratory dollars to Australian dollars is 7,000,000 experimental dollars to one (1) Australian dollar. You will also be paid a show-up fee of 5 Australian Dollars.

The amount of money you earn depends on the decisions you make, so it is important to read and understand these instructions.

During the experiment please do not look at other people's information or computer screen, and do not talk. You are free to ask questions of the experimenter. Your decisions and payoff is private: do not discuss them with anyone else in the room or during any breaks.

This study is conducted by the Aton Experimental Economics Laboratory (AEElab).

More information about AEELab is available at http://www.aton.com.au

If the experiment terminates early (for example, due to software 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 leave the experiment at any time. However if you leave before the end of the experiment you will only receive your show-up fee.

Risks, Benefits and Disclaimers

There are no foreseeable risks or discomforts from your participation in this experiment.

Apart from the cash payment there are no direct peronal benefits for participation.

Confidentiality

All data collected will be saved confidentially. No person-identifiable information will be reported in any published or un-published work.

The activities for today are:

	Activity	Duration
	Reading of the experimental instructions and getting logged in.	15 minutes
2	Signing of consent forms	5 minutes
3	Familiarisation trading session, to learn how to use the trading screens	10 minutes
4	Experimental Session 1	1 hour

The total time required, including reading instructions and receiving payment at the end of the experiment will be approximately 1.5 hours.

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 what effects your profit.

General Instructions

You are one of five retailers of gas (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 1.5 seconds. Your job is to make as much money as you can, in any way you see fit. More specifically, you are to buy gas on the wholesale market from gas pipeline operators (Pipe X and Pipe Y). This gas is supplied to your local Gas Tank. You then sell the gas from this tank to consumers in the retail market. The difference in the price you buy gas at, and what you sell the gas at is yours to keep, after converting into Australian dollars. The specifics of how buy and sell gas on the computer will be discussed shortly.

Buying Gas

You buy gas from the pipes by making a bid to buy a quanity of GigaJoules (GJ) of gas at a particular price (in $/GJ). Note that a GJ is simply a set quantity of gas. The pipeline operators can see your bids (and those from other retailers), and can chose which bids to accept. If they accept your bid, it becomes a Supply Contract. This means that the pipe will supply you the quantity of gas over the next 20 experimental days. You will pay for the gas you receive each day at the bid price (in $/GJ).

EXAMPLE:

Q) Suppose I bid for 4,000 GJ of gas, at a price of $10/GJ. What happens ?

A) If your bid is accepted by a Pipe, it will become a Supply Contract, which lasts 20 days from the date of acceptance. You will be delivered 4,000/20 = 200 GJ of gas each day into your tank. You will pay 200 * 10 = $2,000 to the pipe operator each day, for the gas supplied.

If your bid is not accepted, it will automatically be deleted after 20 experimental days.

Selling Gas

You sell the gas you have purchased to consumers. Every 2 experimental days a consumer will appear in the retailer market and want to purchase gas from one of the retailers. The consumer will look at the current price being offered by each of the 5 retailers, and will enter a 180 day contract with the cheapest retailer, at the price being offered by that retailer. Each day during that 180 day contract, the consumer will take gas from the retailers tank, and pay the retailer for the gas consumed at the contract price. The consumers contract price remains fixed for the duration of their contract.

The consumer will consume higher quantities of gas the lower the contract price. The quantity of gas that the consumer buys is on a daily basis, and since the contract price is fixed for the duration of their contract, so is their daily consumption.

After the 180 day contract is completed, the consumer re-enters the market, and again signs a contract with the cheapest retailer.

As a retailer, you can set your offer price. Each time a consumer enters the market you will see a small figure "flash" in one of the retailer "contract boxes". If it flashes in your box, it means you are currently the cheapest retailer, and you have just had a contract signed with you. If it flashes elsewhere, then that retailer is currently offering gas more cheaply than you are.

You will be initialized with 36 consumers of varying lenghts of contracts, each contracted at $20 per GJ. Additionally, you have been allocated with a full tank of gas, purchased at $20 per GJ.

Default Gas

Each day, gas you have purchased from the pipes flows into your tank, and then consumers take their daily demand from your tank. You must purchase sufficient gas from the pipes to meet your consumers demand. If you do not, your tank will become empty. At that point you will automatically issue a default bid, which costs $50 a GJ, for enough to cover your current customers' demand.

Venting Gas

Your tank is also of a finite size - if you enter into too many supply contracts, your tank will "vent" - which means the gas is simply being wasted. You are still paying the pipe for it. Hence, if you buy too much gas and vent your tank, you are wasting money.

The computer screen

Look at the picture of the computer screen now. The top bar of the window shows the current date, and your current bank balance in experimental dollars. Both are updated in real time.

Below the current date you will find the "My Current Bids" area. This shows all bids to purchase gas that you have made, but have not yet been accepted. Your ID number, the Date the bid was made, the Price per gigajoule, Quantity, and Implied Daily Flow are listed. Implied Daily Flow is the quantity of the bid divided by 20. Each bid is for a 20 day contract. Therefore if you purchase 2,000 GJ you will receive 10 GJ each day for the 20 day contract.

Below the listing of My Current Bids is where you enter in bids to purchase gas. Note the Price and Quantity fields, where you enter in the Per GJ price and how many GJ you wish to purchase. Once submitted to the market a bid will stay active for 20 days. After 20 days the bid is automatically deleted. Once a pipeline operator has accepted your bid or the bid becomes stale, the bid falls off the "My Current Bids" area, and is listed on the "Active Contract" area.

To the right of the"My Current Bids" area are the "Active Contract" and "Inactive Contract" tabs. The active contracts tab lists all bids that have been accepted by the pipeline operators. This shows creator ID, Date accepted, Price, Quantity, Daily Flow, and Days Remaining in the contract. 20 days after acceptance, the contract will end. The "Inactive Contracts" lists the contracts that have either gone stale, or ended.

On the lower left side of the screen is the "Supply of Gas" area. "My Demand (GJ/Day):" is listed first, and simply states how much gas is being demanded by all your currently contracted consumers for that day. "My Supply" is listed as how much gas is being input into your gas tank that day.

The "Supply Cost ($/Gj)" tells you how much your next unit of gas that you sell cost you to buy. That is, if you sell the next unit of gas above the price listed in "Supply Cost ($/Gj)" you will sell it for a price above what you paid for it, and make a profit. The input box with the button "Set" to the right is where you enter the price at which you are willing to sell gas to consumers. After you have entered a price, press the "Set" button to offer this price to consumers. If you are the lowest priced retailer, the next consumer to enter the market will sign a 180 contract with you.

The "Contract" box listed below "Supply Cost ($/GJ)" shows if you were the retailer chosen for the current consumer purchasing gas. When you have the lowest retail price for gas, and have been chosen as the gas provider for the current consumer in the market, you will see a small icon of a person pop up in this window. The area to the right of your gas tank is "The Other Retailers" area, and indicates when a consumer has chosen another retailer to purchase gas from. If another retailer has a lower price than the other retailers, and has been chosen as the gas provider for the current consumer in the market, you will see a small icon of a person pop up in that other retailer's window to the far right.

A graphical representation of your tank is in the "My Gas Tank" area. The supply of gas into your tank is in the upper left side of the area. Tank capacity, the amount capacity that is available (Free (Tj)), the amount of capacity that is being used (Used (Tj)), and days of gas supply left are listed below. In the middle is your gas tank. The Supply of gas into your tank, and Demand of gas by consumers out of your tank may not be equal. This is due to your gas tank. If your supply of gas equals demand for that day, the level of gas in your gas tank will remain unchanged. If your supply of gas is lower than what your consumers demand, gas will be withdrawn from your tank to fulfill demand. If the supply of gas into your tank is higher than what your consumers demand for the day, gas will be put into your tank, which can be used at a later date. The size of your tank will always be able to store enough gas about 20 days of supply. Storing gas costs you nothing

The Consumer information is listed to the right of your gas tank. The number of consumers, the average contract price paid to you, the the consumer demand is listed. You may wish to watch the consumer demand and the supply of gas into your tank, to make sure you have enough gas. If you run out of gas, and your consumer demand is greater than the supply of gas into your gas tank, the "default bid" process will supply your consumers' remaining demand, and you will, in general, lose money on those units of gas supplied by under default bids.

Concluding remarks

You are one of five retailers. You sell gas to consumers. Every 2 days, a new consumer buys a 180 day contract from the retailer who has the lowest price. You must supply consumers who are contracted with you with gas by buying gas from the wholesale market. To buy gas you enter bids that indicate how much gas you wish to buy and at what price, for 20 day contracts. The pipeline operators sell gas to retailers at the bid price. You must buy more gas when your gas supply gets low. If you run out of gas, gas will be supplied to your consumers, and you will receive no profit for the sale of that gas.

At the end of this experiment your earnings will be calculated and exchanged into real Australian dollars, and paid to you. You are initially given an endowment of money which allows you to purchase gas. Your final payment will be based on money earned above whet you start with. For instance, if you are initially given 1,000,000 experimental dollars, any money made over 1,000,000 will be converted into Australian dollars, and paid to you in cash. Additionally, the maximum payment that you can receive is capped at 25 Australian dollars.

If you have any questions, please raise your hand and ask the conductor.

If you are ready to commence, please CLICK HERE to launch the trading screen and login.

Last Updated: 2nd February 2007

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