Market design in wholesale electricity markets
AbstractAs European countries move towards complete unbundling in electricity markets, some issues regarding market design are still under discussion. In particular, which market configuration would give the right incentives to promote efficiency and reduce final prices. In this paper we analyze a design in which prices are binding for more than one market period (like in the former British system or in the Australian system) and we compare price equilibria and collusive incentives under proportional and efficient rationing. To do so, we build on Le Coq (2002) and Crampes and Creti (2003) framework to account for stochastic demand. Our results suggest that with stochastic demand, incentives for strategically withholding capacity are still present but incentives to agree on market share are mitigated by efficient rationing.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2006100.
Date of creation: 00 Nov 2006
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electricity markets; market design; pricing behavior; stochastic demand;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
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