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Is Real-time Pricing Smart for Consumers?

Author

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  • Boom, Anette

    (Department of Economics, Copenhagen Business School)

  • Schwenen, Sebastian

    (Technical University of Munich, School of Management, and DIW Berlin (Germany))

Abstract

We examine the effects of real-time pricing on welfare and consumer surplus in electricity markets. We model consumers on real-time pricing who purchase electricity on the wholesale market. A second group of consumers contracts with retailers and pays time-invariant retail prices. Electricity generating firms compete in supply functions. Increasing the number of consumers on real-time pricing increases welfare and consumer surplus of both types of consumers. Yet, risk averse consumers on traditional time-invariant retail prices are always better off. Collectively, our results point to a public good nature of demand response in power markets when consumers are risk-averse.

Suggested Citation

  • Boom, Anette & Schwenen, Sebastian, 2020. "Is Real-time Pricing Smart for Consumers?," Working Papers 12-2020, Copenhagen Business School, Department of Economics.
    • Handle: RePEc:hhs:cbsnow:2020_012
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    More about this item

    Keywords

    Electricity; Real-time pricing; Market power; Efficiency;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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