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Market design in wholesale electricity markets

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Author Info
SANIN, Maria Eugenia

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Abstract

As 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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Publisher Info
Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2006100.

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Date of creation: 01 Nov 2006
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Handle: RePEc:cor:louvco:2006100

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Related research
Keywords: 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

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Frank A. Wolak & Robert H. Patrick, 2001. "The Impact of Market Rules and Market Structure on the Price Determination Process in the England and Wales Electricity Market," NBER Working Papers 8248, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Reynolds, Stanley S. & Wilson, Bart J., 2000. "Bertrand-Edgeworth Competition, Demand Uncertainty, and Asymmetric Outcomes," Journal of Economic Theory, Elsevier, vol. 92(1), pages 122-141, May. [Downloadable!] (restricted)
  3. Crampes , C. & Fabra , N., 2005. "The Spanish Electricity Industry: Plus ça change …," Cambridge Working Papers in Economics 0502, Faculty of Economics, University of Cambridge. [Downloadable!]
  4. Joskow, P. & Edward Kahn, 2002. "A Quantitative Analysis of Pricing Behavior In California’s Wholesale Electricity Market During Summer 2000," Cambridge Working Papers in Economics 0211, Faculty of Economics, University of Cambridge. [Downloadable!]
    Other versions:
  5. Anna Creti & Natalia Fabra, 2003. "Capacity Markets for Electricity," Industrial Organization 0309002, EconWPA, revised 26 Nov 2003. [Downloadable!]
  6. Crampes, Claude & Fabra, Natalia, 2004. "The Spanish Electricity Industry: Plus ça change..," IDEI Working Papers 317, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
  7. Dechenaux, Emmanuel & Kovenock, Dan, 2003. "Endogenous Rationing, Price Dispersion, and Collusion in Capacity Constrained Supergames," Purdue University Economics Working Papers 1164, Purdue University, Department of Economics. [Downloadable!]
  8. Robert H. Patrick & Frank A. Wolak, 2001. "Estimating the Customer-Level Demand for Electricity Under Real-Time Market Prices," NBER Working Papers 8213, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Maria Eugenia, SANIN & Skerdilajda, ZANAJ, 2007. "Environmental innovation under Cournot competition," Discussion Papers (ECON - Département des Sciences Economiques) 2007031, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
    Other versions:
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