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A more efficient procurement mechanism for reserver capacity in the German market for balancing power

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  • Flinkerbusch, Kai
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    Abstract

    From auction theory we know that multi-unit, pay-as-bid auctions in general lead to bid shading and thus to an inefficient allocation. This result is supported by historical data from the German market for balancing power, which show that bidders bid well above their actual costs. In contrast to the pay-as-bid auction, the Vickrey auction has the dominant strategy property and bidders reveal their true opportunity cost. Consequently, the Vickrey auction allocates efficiently. In this article we show how this auction format can facilitate an efficient capacity procurement process in the German reserve market. --

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    Bibliographic Info

    Paper provided by Center of Applied Economic Research Münster (CAWM), University of Münster in its series CAWM Discussion Papers with number 52.

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    Date of creation: 2011
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    Handle: RePEc:zbw:cawmdp:52

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    Keywords: Electricity market; balancing power; uniform-price auction; pay-as-bid auction;

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    1. Richard Engelbrecht-Wiggans & Charles M. Kahn, 1998. "Multi-unit auctions with uniform prices," Economic Theory, Springer, vol. 12(2), pages 227-258.
    2. Engelbrecht-Wiggans, Richard & Kahn, Charles M., 1998. "Multi-Unit Pay-Your-Bid Auctions with Variable Awards," Games and Economic Behavior, Elsevier, vol. 23(1), pages 25-42, April.
    3. Alfred E. Kahn & Peter Cramton & Robert H. Porter & Richard D. Tabors, 2001. "Uniform Pricing or Pay-as-Bid Pricing: A Dilemma for California and Beyond," Papers of Peter Cramton 01ej, University of Maryland, Department of Economics - Peter Cramton, revised 27 Jan 2001.
    4. Rothkopf, Michael H & Teisberg, Thomas J & Kahn, Edward P, 1990. "Why Are Vickrey Auctions Rare?," Journal of Political Economy, University of Chicago Press, vol. 98(1), pages 94-109, February.
    5. Swinkels, Jeroen M, 1999. "Asymptotic Efficiency for Discriminatory Private Value Auctions," Review of Economic Studies, Wiley Blackwell, vol. 66(3), pages 509-28, July.
    6. Flinkerbusch, Kai & Heuterkes, Michael, 2010. "Cost reduction potentials in the German market for balancing power," Energy Policy, Elsevier, vol. 38(8), pages 4712-4718, August.
    7. Author One David Harbord & Author Two Chris McCoy, 2002. "Mis-Designing the UK Electricity Market," Industrial Organization 0203003, EconWPA.
    8. Müller, Gernot & Rammerstorfer, Margarethe, 2008. "A theoretical analysis of procurement auctions for tertiary control in Germany," Energy Policy, Elsevier, vol. 36(7), pages 2620-2627, July.
    9. repec:rje:randje:v:37:y:2006:1:p:23-46 is not listed on IDEAS
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