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

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  • Kai Flinkerbusch

Abstract

From auction theory we know that multi-unit, pay-as-bid auctions in general lead to bid shading and thus to an inecient 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 eciently. In this article we show how this auction format can facilitate an ecient capacity procurement process in the German reserve market.

Suggested Citation

  • Kai Flinkerbusch, "undated". "A more efficient procurement mechanism for reserve capacity in the German market for balancing power," Working Papers 201178, Institute of Spatial and Housing Economics, Munster Universitary.
  • Handle: RePEc:muc:wpaper:201178
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    File URL: http://www.wiwi.uni-muenster.de/cawm/forschen/Download/Diskbeitraege/efficient-procurement.pdf
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    References listed on IDEAS

    as
    1. Natalia Fabra & Nils‐Henrik Fehr & David Harbord, 2006. "Designing electricity auctions," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 23-46, March.
    2. repec:rje:randje:v:37:y:2006:1:p:23-46 is not listed on IDEAS
    3. 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.
    4. Richard Engelbrecht-Wiggans & Charles M. Kahn, 1998. "Multi-unit auctions with uniform prices," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 12(2), pages 227-258.
    5. Kahn, Alfred E. & Cramton, Peter C. & Porter, Robert H. & Tabors, Richard D., 2001. "Uniform Pricing or Pay-as-Bid Pricing: A Dilemma for California and Beyond," The Electricity Journal, Elsevier, vol. 14(6), pages 70-79, July.
    6. Krishna, Vijay, 2009. "Auction Theory," Elsevier Monographs, Elsevier, edition 2, number 9780123745071.
    7. 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.
    8. Author One David Harbord & Author Two Chris McCoy, 2002. "Mis-Designing the UK Electricity Market," Industrial Organization 0203003, EconWPA.
    9. 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.
    10. Jeroen M. Swinkels, 1999. "Asymptotic Efficiency for Discriminatory Private Value Auctions," Review of Economic Studies, Oxford University Press, vol. 66(3), pages 509-528.
    11. 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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

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

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • N74 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - Europe: 1913-
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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