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Tacit collusion and capacity withholding in repeated uniform price auctions

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  • Dechenaux, Emmanuel
  • Kovenock, Dan

Abstract

This article analyzes tacit collusion in infinitely repeated multiunit uniform price auctions in a symmetric oligopolywith capacity-constrained firms.Under two popular definitions of the uniform price, when each firm sets a price-quantity pair, perfect collusion with equal sharing of profit is easier to sustain in the uniform price auction than in the corresponding discriminatory auction. Moreover, capacity withholding may be necessary to sustain this outcome. Even when firms may set bids that are arbitrary finite step functions of price-quantity pairs, in repeated uniform price auctions maximal collusion is attained with simple price-quantity strategies exhibiting capacity withholding.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 36764.

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Date of creation: 2007
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Publication status: Published in Rand Journal of Economics 4.38(2007): pp. 1044-1069
Handle: RePEc:pra:mprapa:36764

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Keywords: Auction; Capacity; Collusion; Electricity Market; Supply Function;

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References

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  1. Espinosa Alejos, María Paz & Ciarreta Antuñano, Aitor, 2004. "Market Power in the Spanish Electricity Auction," DFAEII Working Papers 2005-04, University of the Basque Country - Department of Foundations of Economic Analysis II.
  2. 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.
  3. Severin Borenstein & James. Bushnell & Steven Stoft, 2000. "The Competitive Effects of Transmission Capacity in A Deregulated Electricity Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 294-325, Summer.
  4. Raymond Deneckere & Dan Kovenock, 1988. "Price Leadership," Discussion Papers 773, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Natalia Fabra, 2003. "Tacit Collusion in Repeated Auctions: Uniform Versus Discriminatory," Journal of Industrial Economics, Wiley Blackwell, vol. 51(3), pages 271-293, 09.
  6. Natalia Fabra & Nils‐Henrik Fehr & David Harbord, 2006. "Designing electricity auctions," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 23-46, 03.
  7. Anette Boom, . "Investments in Electricity Generation Capacity under Different Market Structures with Price Responsive Demand," Papers 016, Departmental Working Papers.
  8. Emmanuel Dechenaux & Dan Kovenock, 2011. "Endogenous rationing, price dispersion and collusion in capacity constrained supergames," Economic Theory, Springer, vol. 47(1), pages 29-74, May.
  9. Bushnell, James & Wolfram, Catherine, 2008. "Electricity Markets," Staff General Research Papers 31547, Iowa State University, Department of Economics.
  10. Crawford, Gregory S. & Crespo, Joseph & Tauchen, Helen, 2007. "Bidding asymmetries in multi-unit auctions: Implications of bid function equilibria in the British spot market for electricity," International Journal of Industrial Organization, Elsevier, vol. 25(6), pages 1233-1268, December.
  11. Garcia-Diaz, Anton & Marin, Pedro L., 2003. "Strategic bidding in electricity pools with short-lived bids: an application to the Spanish market," International Journal of Industrial Organization, Elsevier, vol. 21(2), pages 201-222, February.
  12. Borenstein, Severin & Bushnell, James & Wolak, Frank, 2002. "Measuring Market Inefficiencies in California's Deregulated Electricity Industry," Staff General Research Papers 13136, Iowa State University, Department of Economics.
  13. Davidson, Carl & Deneckere, Raymond, 1984. "Horizontal mergers and collusive behavior," International Journal of Industrial Organization, Elsevier, vol. 2(2), pages 117-132, June.
  14. Le Coq, Chloé, 2002. "Strategic use of available capacity in the electricity spot market," Working Paper Series in Economics and Finance 496, Stockholm School of Economics.
  15. Brock, William A & Scheinkman, Jose A, 1985. "Price Setting Supergames with Capacity Constraints," Review of Economic Studies, Wiley Blackwell, vol. 52(3), pages 371-82, July.
  16. Lambson, Val Eugene, 1987. "Optimal Penal Codes in Price-Setting Supergames with Capacity Constraints," Review of Economic Studies, Wiley Blackwell, vol. 54(3), pages 385-97, July.
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Cited by:
  1. Li, Hongyan & Tesfatsion, Leigh, 2012. "Co-learning patterns as emergent market phenomena: An electricity market illustration," Journal of Economic Behavior & Organization, Elsevier, vol. 82(2), pages 395-419.
  2. Sven Heim & Georg Götz, 2013. "Do pay-as-bid auctions favor collusion? - Evidence from Germany’s market for reserve power," MAGKS Papers on Economics 201324, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  3. 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.
  4. Joseph Mullins & Liam Wagner & John Foster, 2010. "Price Spikes in Electricity Markets: A Strategic Perspective," Energy Economics and Management Group Working Papers 05, School of Economics, University of Queensland, Australia.
  5. Anderson, E.J. & Cau, T.D.H., 2011. "Implicit collusion and individual market power in electricity markets," European Journal of Operational Research, Elsevier, vol. 211(2), pages 403-414, June.

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