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Designing Electricity Auctions

Author

Listed:
  • Natalia Fabra

    (Universidad Carlos III de Madrid)

  • Nils-Henrik M. von der Fehr

    (University of Oslo)

  • David Harbord

    (Market Analysis Ltd)

Abstract

Motivated by the new auction format in the England and Wales electricity market, as well as the recent debate in California, we characterize bidding behavior and market outcomes in uniform and discriminatory electricity auctions. Uniform auctions result in higher average prices than discriminatory auctions, but the ranking in terms of productive efficiency is ambiguous. The comparative effects of other market design features, such as the number of steps in suppliers' bid functions, the duration of bids, and the elasticity of demand are analyzed. We also consider the relationship between market structure and market performance in the two auction formats.

Suggested Citation

  • Natalia Fabra & Nils-Henrik M. von der Fehr & David Harbord, 2006. "Designing Electricity Auctions," RAND Journal of Economics, The RAND Corporation, vol. 37(1), pages 23-46, Spring.
    • Handle: RePEc:rje:randje:v:37:y:2006:1:p:23-46
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