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Market Power and Efficiency in a Computational Electricity Market with Discriminatory Double-Auction Pricing

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Author Info
Nicolaisen, James
Petrov, Valentin
Tesfatsion, Leigh

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Abstract

This study reports experimental market power and efficiency outcomes for a computational wholesale electricity market operating in the short run under systematically varied concentration and capacity conditions. The pricing of electricity is determined by means of a clearinghouse double auction with discriminatory midpoint pricing. Buyers and sellers use a modified Roth-Erev individual reinforcement learning algorithm to determine their price and quantity offers in each auction round. It is shown that high market efficiency is generally attained and that market microstructure is strongly predictive for the relative market power of buyers and sellers, independently of the values set for the reinforcement learning parameters. Results are briefly compared against results from an earlier study in which buyers and sellers instead engage in social mimicry learning via genetic algorithms. Annotated pointers to related work can be accessed here: http://www.econ.iastate.edu/tesfatsi/aelect.htm

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Publisher Info
Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 2050.

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Date of creation: 01 Feb 2002
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Publication status: Published in IEEE Transactions on Evolutionary Computation, October 2001, Vol. 5, No. 5, pp. 504-523.
Handle: RePEc:isu:genres:2050

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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Related research
Keywords: Electricity market; double auction; discriminatory pricing; reinforcement learning; market power; market efficiency;

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Find related papers by JEL classification:
D4 - Microeconomics - - Market Structure and Pricing
L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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. Rust, John & Miller, John H. & Palmer, Richard, 1994. "Characterizing effective trading strategies : Insights from a computerized double auction tournament," Journal of Economic Dynamics and Control, Elsevier, vol. 18(1), pages 61-96, January. [Downloadable!] (restricted)
  2. Tesfatsion, Leigh, 2001. "Structure, behavior, and market power in an evolutionary labor market with adaptive search," Journal of Economic Dynamics and Control, Elsevier, vol. 25(3-4), pages 419-457, March. [Downloadable!] (restricted)
    Other versions:
  3. von der Fehr, Nils-Henrik Morch & Harbord, David, 1993. "Spot Market Competition in the UK Electricity Industry," Economic Journal, Royal Economic Society, vol. 103(418), pages 531-46, May. [Downloadable!] (restricted)
    Other versions:
  4. Bower, John & Bunn, Derek, 2001. "Experimental analysis of the efficiency of uniform-price versus discriminatory auctions in the England and Wales electricity market," Journal of Economic Dynamics and Control, Elsevier, vol. 25(3-4), pages 561-592, March. [Downloadable!] (restricted)
  5. Klemperer, P., 1999. "Auction Theory: a Guide to the Literature," Economics Papers 1999-w12, Economics Group, Nuffield College, University of Oxford.
    Other versions:
  6. Ian Domowitz, 1990. "Automated trade execution systems," Proceedings, Federal Reserve Bank of Chicago, pages 227-251.
  7. Colin Camerer & Teck-Hua Ho, 1999. "Experience-weighted Attraction Learning in Normal Form Games," Econometrica, Econometric Society, vol. 67(4), pages 827-874, July.
  8. Vriend, Nicolaas J., 2000. "An illustration of the essential difference between individual and social learning, and its consequences for computational analyses," Journal of Economic Dynamics and Control, Elsevier, vol. 24(1), pages 1-19, January. [Downloadable!] (restricted)
  9. Gode, Dhananjay K & Sunder, Shyam, 1993. "Allocative Efficiency of Markets with Zero-Intelligence Traders: Market as a Partial Substitute for Individual Rationality," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 119-37, February. [Downloadable!] (restricted)
  10. Professor Paul Klemperer, 2000. "What Really Matters in Auction Design," Microeconomics 0004008, EconWPA. [Downloadable!]
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  11. Green, Richard J & Newbery, David M, 1992. "Competition in the British Electricity Spot Market," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 929-53, October. [Downloadable!] (restricted)
    Other versions:
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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. Manuel L. Costa & Fernando S. Oliveira, 2005. "An Evolutionary Analysis of Investment in Electricity Markets," Computing in Economics and Finance 2005 430, Society for Computational Economics. [Downloadable!]
  2. Alan Mehlenbacher, 2007. "Multiagent System Platform for Auction Simulations," Department Discussion Papers 0706, Department of Economics, University of Victoria. [Downloadable!]
  3. 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. [Downloadable!]
  4. Augusto Rupérez Micola & Albert Banal Estañol & Derek W. Bunn, 2006. "Incentives and Coordination in Vertically Related Energy Markets," CIG Working Papers SP II 2006-02, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG). [Downloadable!]
    Other versions:
  5. Widergren, Steven & Sun, Junjie & Tesfatsion, Leigh S., 2006. "Market Design Test Environments," Staff General Research Papers 12516, Iowa State University, Department of Economics. [Downloadable!]
  6. Hailu, Atakelty & Schilizzi, Steven & Thoyer, Sophie, 2005. "Assessing the performance of auctions for the allocation of conservation contracts: Theoretical and computational approaches," 2005 Annual meeting, July 24-27, Providence, RI 19478, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  7. Nicolas Audet & Toni Gravelle & Jing Yang, 2002. "Alternative Trading Systems: Does One Shoe Fit All?," Working Papers 02-33, Bank of Canada. [Downloadable!]
  8. Albert Banal-Estanol & Augusto Rupérez-Micola, 2007. "Composition of Electricity Generation Portfolios, Pivotal Dynamics and Market Prices," Economics Working Papers 1083, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
  9. Atakelty Hailu & Sophie Thoyer, 2006. "Multi-unit auction format design," Journal of Economic Interaction and Coordination, Springer, vol. 1(2), pages 129-146, November. [Downloadable!] (restricted)
  10. Silvano Cincotti & Eric Guerci, 2005. "Agent-based simulation of power exchange with heterogeneous production companies," Computing in Economics and Finance 2005 334, Society for Computational Economics. [Downloadable!]
  11. Junjie Sun & Leigh Tesfatsion, 2007. "Dynamic Testing of Wholesale Power Market Designs: An Open-Source Agent-Based Framework," Computational Economics, Springer, vol. 30(3), pages 291-327, October. [Downloadable!] (restricted)
    Other versions:
  12. Eric Guerci & Stefano Ivaldi & Silvano Cincotti, 2008. "Learning Agents in an Artificial Power Exchange: Tacit Collusion, Market Power and Efficiency of Two Double-auction Mechanisms," Computational Economics, Springer, vol. 32(1), pages 73-98, September. [Downloadable!] (restricted)
  13. Leigh Tesfatsion, 2002. "Agent-Based Computational Economics," Computational Economics 0203001, EconWPA, revised 15 Aug 2002. [Downloadable!]
  14. Fernando S. Oliveira & Derek W. Bunn & London Business School, 2006. "Modeling the strategic trading of electricity assets," Computing in Economics and Finance 2006 235, Society for Computational Economics. [Downloadable!]
  15. Koesrindartoto, Deddy P., 2004. "Treasury Auctions, Uniform or Discriminatory?: An Agent-Based Approach," Staff General Research Papers 11988, Iowa State University, Department of Economics. [Downloadable!]
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