Strategic use of available capacity in the electricity spot market
AbstractThe 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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Bibliographic InfoPaper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 496.
Length: 27 pages
Date of creation: 18 Apr 2002
Date of revision:
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spot market; capacity game; auction mechanism; electricity.;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-05-03 (All new papers)
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- Dechenaux, Emmanuel & Kovenock, Dan, 2005.
"Tacit Collusion and Capacity Withholding in Repeated Uniform Price Auctions,"
Purdue University Economics Working Papers
1174, Purdue University, Department of Economics.
- Emmanuel Dechenaux & Dan Kovenock, 2007. "Tacit collusion and capacity withholding in repeated uniform price auctions," RAND Journal of Economics, RAND Corporation, vol. 38(4), pages 1044-1069, December.
- 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).
- Dechenaux, Emmanuel & Kovenock, Dan, 2005. "Tacit Collusion and Capacity Withholding in Repeated Uniform Price Auctions," Working Paper Series 636, Research Institute of Industrial Economics.
- Dechenaux, Emmanuel & Kovenock, Dan, 2007. "Tacit collusion and capacity withholding in repeated uniform price auctions," MPRA Paper 36764, University Library of Munich, Germany.
- 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.
- 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.
- 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.
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