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Coordinating cross-border congestion management through auctions : An experimental approach to European solutions


  • Céline Jullien

    () (Grenoble Ecole de Management, 12 rue Pierre Sémard, 38003 Grenoble, Cedex 01, France)

  • Virginie Pignon

    () (Electricité de France)

  • Stéphane Robin

    () (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France)

  • Carine Staropoli

    () (University Panthéon Sorbonne, Centre d’Economie de la Sorbonne, 106 boulevard de l’Hôpital Bureau 514, 75013 Paris, France)


Competition among producers within an integrated electricity system is impeded by any limited transmission capacity there may be at its borders. Two alternative market mechanisms have recently been designed to organize the allocation of scarce transmission capacity at cross-border level : (i) the “implicit auction”, already used in some countries, and (ii) the “coordinated explicit auction”, proposed by the European Transmission System Operators (ETSO) but not implemented yet. The main advantage of the explicit auction is that it allows each country to keep its own power exchange running. In the European institutional context, this is seen as a factor of success of a market reform, although the explicit auction (not coordinated) is known to be less efficient than the implicit mechanism. The addition of a coordination dimension in the explicit auction is intended to solve problems of international flows. We use an experimental methodology to identify and compare in a laboratory setting the efficiency properties of these two market mechanisms, given a market structure similar to the existing one in continental Europe, i.e. a competitive oligopoly. Our main result highlights the inefficiency of the coordinated explicit auction compared to the performance of the implicit auction, measured in terms of both energy prices and transmission capacity allocation. We suggest that the poor performance of the coordinated explicit auction in the laboratory is due to the level of individual expectations about both energy and transmission prices that the mechanism demands. One solution to resolve this problem when the mechanism is implemented in the field would be to design an additional and secondary market for “used” transmission capacity.

Suggested Citation

  • Céline Jullien & Virginie Pignon & Stéphane Robin & Carine Staropoli, 2011. "Coordinating cross-border congestion management through auctions : An experimental approach to European solutions," Working Papers 1121, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
  • Handle: RePEc:gat:wpaper:1121

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    References listed on IDEAS

    1. Charles N. Noussair & Charles R. Plott & Raymond G. Riezman, 2013. "An Experimental Investigation of the Patterns of International Trade," World Scientific Book Chapters,in: International Trade Agreements and Political Economy, chapter 17, pages 299-328 World Scientific Publishing Co. Pte. Ltd..
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    3. Vernon L. Smith, 2003. "Constructivist and Ecological Rationality in Economics," American Economic Review, American Economic Association, vol. 93(3), pages 465-508, June.
    4. Hogan, William W, 1992. "Contract Networks for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 4(3), pages 211-242, September.
    5. Roger E. Bohn & Michael C. Caramanis & Fred C. Schweppe, 1984. "Optimal Pricing in Electrical Networks over Space and Time," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 360-376, Autumn.
    6. Ehrenmann, Andreas & Smeers, Yves, 2005. "Inefficiencies in European congestion management proposals," Utilities Policy, Elsevier, vol. 13(2), pages 135-152, June.
    7. Perez-Arriaga, Ignacio J. & Olmos, Luis, 2005. "A plausible congestion management scheme for the internal electricity market of the European Union," Utilities Policy, Elsevier, vol. 13(2), pages 117-134, June.
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    Cited by:

    1. repec:eee:energy:v:143:y:2018:i:c:p:900-910 is not listed on IDEAS
    2. Mulder, Machiel & Schoonbeek, Lambert, 2013. "Decomposing changes in competition in the Dutch electricity market through the residual supply index," Energy Economics, Elsevier, vol. 39(C), pages 100-107.
    3. Richter, Jan & Viehmann, Johannes, 2014. "The value of information in explicit cross-border capacity auction regimes in electricity markets," Energy Policy, Elsevier, vol. 70(C), pages 74-84.
    4. repec:dgr:rugsom:13003-eef is not listed on IDEAS
    5. Hagspiel, S. & Jägemann, C. & Lindenberger, D. & Brown, T. & Cherevatskiy, S. & Tröster, E., 2014. "Cost-optimal power system extension under flow-based market coupling," Energy, Elsevier, vol. 66(C), pages 654-666.
    6. Hagspiel, Simeon & Jägemann, Cosima & Lindenberger, Dietmar & Brown, Tom & Cherevatskiy, Stanislav & Tröster, Eckehard, 2013. "Cost-Optimal Power System Extension under Flow-Based Market Coupling," EWI Working Papers 2013-9, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).

    More about this item


    auctions; congestion management; electricity markets; experimental economics;

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D49 - Microeconomics - - Market Structure, Pricing, and Design - - - Other

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