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Auctions with Privately Known Capacities: Understanding Competition Among Renewables

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  • Natalia Fabra
  • Gerard Llobet

Abstract

We study a multi-unit auction model in which bidders are privately informed about the maximum number of units they are willing to trade (which we refer to as ‘capacity’). No matter how big or small, private information on capacities changes the nature of the equilibrium as compared to when private information is on costs (or valuations). Also, the uniform-price and discriminatory auctions are not revenue equivalent, in contrast to when costs are independently drawn. In particular, with independently drawn capacities (and possibly costs), the discriminatory format reduces payments to firms relative to the uniform-price format. Our analysis is motivated by the performance of future electricity markets in which renewable energies will be predominant, but the set-up also applies to a variety of contexts (from central bank liquidity auctions to emissions trading).

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  • Natalia Fabra & Gerard Llobet, 2023. "Auctions with Privately Known Capacities: Understanding Competition Among Renewables," The Economic Journal, Royal Economic Society, vol. 133(651), pages 1106-1146.
    • Handle: RePEc:oup:econjl:v:133:y:2023:i:651:p:1106-1146.
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    References listed on IDEAS

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    1. Fabra, Natalia, 2018. "A primer on capacity mechanisms," Energy Economics, Elsevier, vol. 75(C), pages 323-335.
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    Cited by:

    1. Edward Anderson & Pär Holmberg, 2023. "Multi-unit auctions with uncertain supply and single-unit demand," Working Papers EPRG2310, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    2. Somogyi, Robert & Vergote, Wouter & Virag, Gabor, 2023. "Price competition with capacity uncertainty - feasting on leftovers," Games and Economic Behavior, Elsevier, vol. 140(C), pages 253-271.

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