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The Case for a Discriminatory Pricing Rule in Competitive Electricity Pools

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  • Ahmed Anwar

    ()

Abstract

We present a multi-unit common value auction model with capacity constraints which ensure the participants face a residual market. We show that a discriminatory auction performs better than a uniform one when such constraints are present. We then look at a more explicit model of electricity pools and show that the preferred uniform pricing rule can lead to equilibria that are even worse than the basic model suggests. We show that a discriminatory auction would lead to relatively more competitive prices.

Suggested Citation

  • Ahmed Anwar, 1999. "The Case for a Discriminatory Pricing Rule in Competitive Electricity Pools," ESE Discussion Papers 39, Edinburgh School of Economics, University of Edinburgh.
  • Handle: RePEc:edn:esedps:39
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    File URL: http://www.econ.ed.ac.uk/papers/id39_esedps.pdf
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    References listed on IDEAS

    as
    1. Robert Wilson, 1979. "Auctions of Shares," The Quarterly Journal of Economics, Oxford University Press, vol. 93(4), pages 675-689.
    2. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, March.
    3. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-1277, November.
    4. Mark Armstrong & Simon Cowan & John Vickers, 1994. "Regulatory Reform: Economic Analysis and British Experience," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262510790, May.
    5. Back, Kerry & Zender, Jaime F, 1993. "Auctions of Divisible Goods: On the Rationale for the Treasury Experiment," Review of Financial Studies, Society for Financial Studies, vol. 6(4), pages 733-764.
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    Cited by:

    1. Jordi Brandts & Stanley S. Reynolds & Arthur Schram, 2014. "Pivotal Suppliers and Market Power in Experimental Supply Function Competition," Economic Journal, Royal Economic Society, vol. 124(579), pages 887-916, September.
    2. repec:spr:joptap:v:140:y:2009:i:1:d:10.1007_s10957-008-9437-8 is not listed on IDEAS
    3. Genc, Talat S. & Reynolds, Stanley S., 2011. "Supply function equilibria with capacity constraints and pivotal suppliers," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 432-442, July.

    More about this item

    Keywords

    electricity pool; multi-unit auction;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - 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

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