Strategic Demand Response to Dynamic Pricing: A Lab Experiment for the Electricity Market

Ayse Atasoy, Marjolein Harmsen-van Hout () and Reinhard Madlener
Additional contact information
Marjolein Harmsen-van Hout: E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN), http://www.fcn.eonerc.rwth-aachen.de
Authors registered in the RePEc Author Service: Marjolein J.W. Harmsen - van Hout ()

No 5/2018, FCN Working Papers from E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)

Abstract: Despite the efforts of restructuring power markets over the last decades, the lack of demand response in the retail electricity markets remains a significant concern. Possible demand response would help to reduce prices and volatility by better matching supply and demand through improved price signals. In this paper we develop a laboratory tool to experimentally investigate the demand response in the electricity market. The baseline treatment constitutes a two-period ‘wait-or-buy’ game with an exogenous first period, an automated supplier, and twenty subject buyers. While the seller offers a fixed number of a product in the market, consumers decide on purchasing the product immediately or waiting until the next period, taking (i) price uncertainty and (ii) inventory risk into account. This treatment captures demand response in the retail market with scarce products. We design an additional treatment by removing the inventory constraint and introducing a devaluation rule, where consumers only bear the price risk – thus mimicking the demand response in the electricity market. We find that in both retail and electricity market treatments consumers play on average the equilibrium predictions and buy strategically. However, there are systematic deviations from rationality in both settings, i.e., consumers buy too soon or wait too long.

Keywords: Demand Response; Electricity; Dynamic Pricing; Strategic Behavior (search for similar items in EconPapers)
JEL-codes: C92 D01 D81 M11 Q31 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2018-04, Revised 2020-01-22
New Economics Papers: this item is included in nep-com, nep-ene and nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.fcn.eonerc.rwth-aachen.de/global/show_ ... p?id=aaaaaaaabcdoqmb Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:fcnwpa:2018_005

Access Statistics for this paper

More papers in FCN Working Papers from E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN) Contact information at EDIRC.
Bibliographic data for series maintained by Hendrik Schmitz ().