Experimental test of the effect of imposing a penalty on buyers in a specific market

Using experimental economics tools this paper is testing one of the potential pitfalls in the renewable energy certificates (RECs) market in Australia. Stylised experiment highlighted that sellers' knowledge of the existence of the penalty to buyers for non compliance with mandatory requirements to have a certain number of RECs and the level of penalty in the duopoly market on supply side can push prices for unit of RECs higher than would occur in competitive market without penalty. The level of penalty was used by sellers as a "focal" point for setting the price for the unit.