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Strategic use of available capacity in the electricity spot market

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  • Le Coq, Chloé

    ()
    (Dept. of Economics, Stockholm School of Economics)

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    Abstract

    The literature on deregulated electricity markets generally assumes available capacities to be given. In contrast, this paper studies a model where firms precommit to capacity levels before competing in a uniform price auction. The analysis sheds light on recent empirical findings that firms use their available capacity to obtain high market prices. There exist two equilibria where at least one firm withholds its available capacity to induce the maximum price. Moreover, in one equilibrium, the inefficient firm obtains a relatively large market share.

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    File URL: http://swopec.hhs.se/hastef/papers/hastef0496.pdf
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    Bibliographic Info

    Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 496.

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    Length: 27 pages
    Date of creation: 18 Apr 2002
    Date of revision:
    Handle: RePEc:hhs:hastef:0496

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    Keywords: spot market; capacity game; auction mechanism; electricity.;

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    Cited by:
    1. Emmanuel Dechenaux & Dan Kovenock, 2005. "Tacit Collusion and Capacity Withholding in Repeated Uniform Price Auctions," UFAE and IAE Working Papers 645.05, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    2. Nicholas Shunda, 2005. "Strategic Behavior in Day-Ahead and Real-Time Markets for Electricity: Offer Cost or Payment Cost Minimization?," Working papers 2005-48, University of Connecticut, Department of Economics.
    3. Sebastian Schwenen, 2012. "Strategic Bidding in Multi-unit Auctions with Capacity Constrained Bidders: The New York Capacity Market," RSCAS Working Papers 2012/62, European University Institute.
    4. Vicki Knoblauch, 2004. "Can a Newly Proposed Mechanism for Allocating Contracts in U.S. Electricity Wholesale Markets Lead to Lower Prices? A Game Theoretic Analysis," Working papers 2004-41, University of Connecticut, Department of Economics, revised Mar 2006.

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